Download ppt - Money Management

(C) Copyright 2006 Stephen Margison www.sm-forex.com

“IT’S TIME TO GET MORE OUT OF LIFE”

www.sm-forex.com

Money Management

http://www.forextradingtv.com/

The Forex Codes Money Management

• This is the crux of the whole Workshop

• Failure to employ sound money management principles will bust you no matter how good a trader you are!



• Never risk more than 3% of your equity on any trade

• This is not a get rich quick scheme

• Protect your Equity at all costs!




The Forex Codes Money Management - Drawdown

• If you have an equity pot of £10,000 and you lose £5,000 then you have a 50% drawdown

• It is easy to lose money and hard to get it back





• Typical Novice Scenario:• Account size; £5,000

• Position Size: £10 per Pip

• Risk: 30 Pip Stop Loss = £300 = 6%

• First 2 trades win for profit of 12%. Greed and overconfidence makes you increase your risk

• Next 5 trades lose at £15 per Pip = £2,250 losses

• Available Equity: £5,600 - £2,250 = £3,350

• Total Drawdown: 33%(C) Copyright 2006 Stephen Margison

www.sm-forex.com

The Forex Codes Money Management – Stop Size

• Available Equity: £5,000 £10,000• Risk: 3% = £150 3% = £300

• If your Stop Loss size is 30 Pips then the maximum trade position is

£150/30 = £5 a Pip

£300/30 = £10 a Pip


The Forex Codes Money Management – Stop Size

• The 3% rule is an absolute maximum. Professional traders use less!!

• Psychologically you can accept your losses better when they are small


The Forex Codes Leverage and Margin

• Gearing or “leverage” is the power to control a lot with just a little.

• With Forex trading $1,000 in your account can control a position value of $100,000!



• A Standard Lot - $1,000 controls $100,000. 1 pip = $10

• A Mini Lot - $100 controls $10,000. 1 pip = $1



• Margin is nothing more than the money that the broker requires you to maintain in your account before he will lend you money to trade.

• When the broker closes your trade because you don’t have enough margin the term used is a Margin Call.



• It is desirable to trade when you have a high risk to reward ratio. The higher the ratio, the less you have to be right



“IT’S TIME TO GET MORE OUT OF LIFE”

www.sm-forex.com

Money Management

http://www.forextradingtv.com/