When trading on Forex, it is necessary to know how to properly place your capital; how to calculate the amount of funds needed to make a trade in order to obtain sufficient earnings; and if it comes to loss, how not to loose your entire deposit.
To achieve these goals, there are special equity management methods (money management techniques):
No equity management methods. Most traders, when opening a position, do not calculate the amount of funds that are being used, estimate potential earnings or potential loss. This is considered to be a technique too, but if the capital is not very large to begin with, several unsuccessful trades will make it completely disappear.
Multiple contracts. Opening several positions on the foreign exchange market on different instruments, for instance, EURUSD and EURGBP, a trader can earn profit if the price moves in the right direction. Earnings can be considerable, losses too though.
Fixed amount. Depending on the amount of funds available, a trader decides how much can be put at risk when opening one or another position. The trader then makes deals not exceeding this amount.
Fixed equity interest rate. This technique is similar to the previous one but there is one small difference: the trader determines the equity interest rate, but not the equity amount.
Establishing correlation between profits and losses. It is necessary to track statistics on all operations (the amount of losses, profits and the correspondence between them). When you see the correlation between them, you can apply what you have learned to your trading.
Equity curve trading. Most people are acquainted with moving averages, which can act like signals for entering the market or leaving it. According to this method, moving averages (long- and short-term) are used to forecast trade results. If the short-term moving average of the equity curve is above the long one, a position can be opened and it will be profitable. If, however, the short-term moving average is below the long one, it is better to wait for a while.
Choosing a particular money management technique of trading on Forex can help you rationally use your money on the market and earn profit. Money management techniques are used for opening positions.
To achieve these goals, there are special equity management methods (money management techniques):
No equity management methods. Most traders, when opening a position, do not calculate the amount of funds that are being used, estimate potential earnings or potential loss. This is considered to be a technique too, but if the capital is not very large to begin with, several unsuccessful trades will make it completely disappear.
Multiple contracts. Opening several positions on the foreign exchange market on different instruments, for instance, EURUSD and EURGBP, a trader can earn profit if the price moves in the right direction. Earnings can be considerable, losses too though.
Fixed amount. Depending on the amount of funds available, a trader decides how much can be put at risk when opening one or another position. The trader then makes deals not exceeding this amount.
Fixed equity interest rate. This technique is similar to the previous one but there is one small difference: the trader determines the equity interest rate, but not the equity amount.
Establishing correlation between profits and losses. It is necessary to track statistics on all operations (the amount of losses, profits and the correspondence between them). When you see the correlation between them, you can apply what you have learned to your trading.
Equity curve trading. Most people are acquainted with moving averages, which can act like signals for entering the market or leaving it. According to this method, moving averages (long- and short-term) are used to forecast trade results. If the short-term moving average of the equity curve is above the long one, a position can be opened and it will be profitable. If, however, the short-term moving average is below the long one, it is better to wait for a while.
Choosing a particular money management technique of trading on Forex can help you rationally use your money on the market and earn profit. Money management techniques are used for opening positions.
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