Competent management of capital has always been a guarantee of its preservation and augmentation regardless of the scope of its owner. Trading on the currency exchange is no exception.
Money management for Forex implies planning of the sizes of potential profit and risks, and also calculation of means by which the speculator is ready to risk. And this applies not only to individual transactions, but also to all trade.
Each trader has his own strategies for trading on the forex approach to mani management. However, as a rule, it is based on general principles. The amount of currency risk in Forex trading is determined by such parameter as the ratio of the volume of transactions with the amount of the deposit and the size of the stop orders.
In the practice of currency trading, the following capital management options are distinguished:
1. Careless
In other words, the trader does not take any actions to insure the available funds, opening deals to the maximum allowable amount. This option is used by speculators who lack the means to trade. It is used either by inexperienced novices or by traders who do not know what forex indicators are. Absence of capital management does not allow to receive a stable profit and can lead to a deposit discharge.
2. Initial
In this case, the speculator slightly limits the trading volumes. The ratio of capital and size of transactions is approximately 1: 100.To minimize risks, orders are used stop-loss and trailing stop. Financial losses in a single transaction can reach 10% of the amount of available capital.
3. Optimal
Using this option is suitable for traders who have solid deposits of several thousand dollars. The speculator diversifies his capital. For trade, only half of the available funds are used, the second half is kept in the reserve account. The ratio of trading volumes to the available deposit is about 1:20, and losses from one transaction do not exceed 5%.
4. Maximum
This option involves not only the diversification of funds, but also capital insurance. Trading is conducted with minimal financial risk, marginal leverage may not be used at all. Losses from one operation do not exceed 1-2% of the amount of capital. This method is used by speculators who prefer long-term trading and have a solid start-up capital.
Each speculator relies on the rating of PAMM sites and independently chooses one or another option for managing deposit funds, taking into account their requests and opportunities.