Some Money Management Ideas

The primary thing that you have to remember is when trading the forex, is that you are trading in a “Margin Account” and you must never, ever, ever over leverage your account. You can easily place yourself in a position for a margin call and have your account liquidated if you trade too many lots at one time, and the trades goes against you. You must do the math before placing your trade and doing a little extra math will help you reach your financial goals. Those are the things we will discuss in this document.

Calculating the number of lots to trade at any given time and/or on any given trade is a MUST DO in this business. Additionally, these calculations when done properly and done before each trade, will allow you to grow account value exponentially. (Exponentially is one of those fancy words which simply means to multiply over and over again or to “snowball”.) The purpose of this document is to show all of you “technologically challenged folks” how to calculate your lots per trade using only a cheap calculator or your fingers and toes… whichever of these two things are more readily available and/or you are more comfortable using.

I’m going to give you examples based on my personal risk tolerance and my annual goals. I am also going to attempt to keep this very simple by using the cost and pip value of 1 pair, the EUR/JPY. Please keep in mind that these figures will differ based on your personal risk tolerance, goals, trading style (active, swing, or position), the pair you are trading and your ever-changing account value.

OK, for this example, here are the assumptions:

Current account balance = $10,000
Weekly goal = 20% or $2,000 if your account balance is $10K. (I know…a 20% weekly increase is a pretty big goal. However, with the trading signals that you now have, this number is very doable!!!) Anyways, you should always, “Shoot for the moon. Even if you miss, you will still be among the stars.” — Kermit the Frog.
Percentage of account value invested in lots at any one time = 10%. ($10,000 X 10% = $1,000)
Maximum risk at any one time = 10% ($10,000 X 10% = $1,000)

Are you with me so far? (If I can figure this out on my fingers and toes then surely you can do it with a calculator…) Pretty simple, huh?

Now here we are with a mini-account balance of $10,000. We are going to invest 10% of our total account balance in 1 trade on the EUR/JPY. (If you are running more than 1 trade at a time, you should adjust accordingly.

Example: 2 trades = 5% each, 3 trades = 3.33% each, 4 trades = 2.5% each, etc.) In our case, 10% of our $10,000 account = $1,000, and we are buying the EUR/JPY. How many mini-lots of the EUR/JPY can we buy with $1,000? If we can buy 1 mini lot for $82.58, then we divide $1,000 by $82.58 which equals 12.1094 mini lots and we round down to 12 mini lots. (Always round down just to be on the safe side.)

Now you are asking, “Where do I find the current prices of the lots?” There is a link at the end of this document “currency-pair-information”. Click this link and you’ll find the pip value and lot cost, in both standard and mini, listed there. This information slowly changes as the market moves but the link will be updated at least twice a month. I’ll also explain how you can figure this for yourself, some time in the not too distant future. Now, let’s find out what your MAXIMUM STOP LOSS should be.

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