Chapter 9 – Money Management

Trading the news requires a sound money management plan and a low risk to reward ratio. This Money Management Plan will not only benefit your news trading, but by applying it to all your trading decisions, you will see a significant increase in both profit and consistency.

Newsletter

Zero spam.

The first rule in money management is to protect your money. If you take unnecessary risks all the time, you will lose your entire account. The first step is to determine your leverage and your lot size.

Your maximum leverage should not be more than 8 times of your available deposit amount. I know some brokers will offer you a 200:1 or even 400:1 leverage, but if you are not using it fully, it doesn’t really benefit you. If you were to use a 400:1 leverage on a $25,000 account fully, you would have to trade 100 standard lots. No one in their right mind will trade 100 standard lots using a 400:1 leverage. Every pip will either make you $1,000 or cost you $1,000, and you will be paying $3,000 in spread cost just to get in on a trade.

3rd Party Advertisement

On a side note: Most brokers offering 200:1 or 400:1 accounts are secretly hoping and wishing that you over-leverage your account. They may have a dealing desk trading against you, and it is just a matter of time before you get margined out… They have a license to rob you blind…legally.

Remember that trading Forex is similar to, in many ways, betting in a casino. The house will always win. If you use a sound money management plan, you will stay long enough to catch the big moves and make some real money, whereas people who over-leverage their accounts won’t have the chance.

Therefore, if you have a $25,000 account, you should trade no more than 8 times your money, which is $200,000, or 2 standard lots. If you were trading a currency pair that requires more margins, then you should only trade 1 standard lot per every $25,000.

You should also put a limit to your daily loss to no more than 2% of your account. In our case of $25,000 account, you should not lose more than $500 per day. That is 25 pips per lot if you trade 2 lots, or 50 pips if you trade 1 lot.

In the case of trading fundamental news, I would suggest that you divide your total trading lots to 2. Using our $25,000 example, you would trade 1 Lot per trade up to 2 trades at a time.

 

Pages: 1 2 3

About Kelvin Ching

I'm a professional Forex trader and I have been trading for over 7 years. I was a series 3 broker and a registered CTA with the NFA, the main regulatory agency in the United States, and I have been involved at the highest levels in commodity trading. I also have a background in Information Technology, graphics design, and programming... I'm the co-founder of CurrencyNewsTrading.com, a site dedicated to fundamental analysis and news trading.

Speak Your Mind

*

Newsletter

Zero spam.