The foreign exchange market or Forex is the largest financial market in the world. Due to the advancement of Forex brokers, trading in the Forex market is becoming very easy and popular. As Forex trading is getting popular, more people are showing interest in it. As a result, it has become essential for novice traders to gather the proper knowledge about money management. Because this money management rules defer a successful trader from a trader who blows his account balance often.
Trading with proper risk management rules and strong knowledge helps a trader to grow his account balance safely. If someone trades without any rules and knowledge, it is nothing but gambling. So we can understand trading with proper money management is very essential for any trading plan.
In this article, we are going to discuss about some tactics which will help you to protect and grow your account balance.
Willing to lose your capital
Trading is not directly related to real money and making any type of bad decisions will ruin your account balance. Trading is a place where you will lose some of your money and it is quite natural. So a trader must need to invest as much as he can afford to lose and never think to trade as a quick getting rich skim. Because of that do not join the trading industry until you are financially solvent and have a certain amount of money that you can lose without any risk.
In the beginning, if you try to warn your livelihood by trading, it will not be a great idea. So before joining a trading industry you must gather an amount that you will not regret losing.
Setting up the risk to reward ratio
As a trader, you need to set money management rules to ensure the safety of your trading balance. Because of that traders just need to fix a positive risk-reward ratio according to their expected outcome from trading. The risk-reward ratio is the ratio between the amount of profit you want to get and the amount of risk you take. The risk-reward ratio can be 1:2 or higher.
Using a 1:1 risk-reward ratio is not prohibited but it increases the risk exposer. Using a risk-reward ratio of 1:2+ gives a trader some advantage like they can have a 50% winning rate but still can be in profit. The main advantage of using a positive risk-reward ratio is that it becomes very hard to blow the trading capital. To learn more about risk assessment factors, visit the site of Saxo and use their free resources.
Choose a valid lot size
Choosing a lot size according to the trader’s account balance is very important. When you invest in trading then first you must need to choose a certain amount which you will take risk of. After fixing a risking amount traders need to fix a lot size according to that amount. They need to stick to that position size and if they use less risk it will be much helpful for them.
In the trading industry, all the successful traders always try to reduce a risk exposer in their trades. So if a trader spot a good signal they must not increase their lot size because by doing that they increase the risk exposer. As a result, they might blow their account if the market goes against them.
Avoid risking everything in one trade
Trading is such a professing where you can lose your money any time if you don’t make any mistake. If you want to be a successful trader, you need to try to save your trading balance. Because without an invested capital a trader can’t earn anything from trading. Once you lose your trading capital, investing a second time is near to impossible. So always try to risk a small amount of capital in each trade rather than in risking everything in one trade. So if you are a trader or thinking about joining the trading industry then follow our discussed tactics which hopefully help you to reduce your risk and to grow your account balance safely.