When it comes to forex trading for beginners, one of the factors to include in your forex trading tutorial is how to manage your risk. Whether or not your forex trading is profitable depends on how well you can grasp the principles of risk management.
So, for you to make money online trading forex, you must follow the ten percent risk recommendation. What this means is that you should never risk more than ten percent of your trading account at any given time.
The ten percent recommendation can is for a single trade or for all your different trades combined you should never risk more than 50% of equity. The main point whether you open a single trade position or multiple trade positions, you should never risk more than ten/fifty percent of your trading account.
Take for instance, if the total money you have in your trading account is 100 USD, the maximum amount you can risk at any given time must not exceed 50 USD. This is possible to trade with this amount if you trade micro lots, although psychologically, you may find it difficult to trade micro lots.
Placing a maximum order of 10 USD for the sake of risk management implies that you can earn 20 USD when judged strictly from the 1:2 risk reward ratio. Nevertheless, it doesn’t always happen this way as traders in their quest to boost their returns mistakenly risk more than ten percent which is the recommended amount. This frequently results in failure.
With this said, you need to know having a 100 USD trading account and desiring to succeed with that amount will need enormous amount of commitment and perseverance. Besides, many people beginning to trade the forex market are impatient and would hardly commit such an enormous amount of time.
Even when your trading account is 1,000 USD, your risk tolerance is limited to 100 USD. Although, it is manageable, the profits ratio continues to be the same 1:2 risk reward ratio.
