You’ve probably heard about sound money management more than once. It seems, but what is so difficult about it? Nevertheless, many traders lose because they do not follow the rules of money management. Money management methods are extensive in many ways, and it will not be possible to consider them in one article. But we will try to emphasize the essential things.
All money entry
In this case, the trader enters into a position with the entire deposit without limiting his risks in any way. If there is leverage and under the condition of coincidence of circumstances, he can earn a lot of money in such conditions. However, risks also increase proportionally, and this kind of approach can in no way be called sensible trade.
With this approach, literally one trade, and that’s it, you don’t have a deposit left. We would not recommend this trading style to anyone unless you have a very small amount in your account and are potentially willing to take such a risk.
Fixed trade volume
In this case, the transaction is concluded taking into account your deposit, and the volume itself in subsequent transactions increases in proportion to the growth of the deposit. For example, if a trader has $ 100 on his deposit, his trade volume is 0.01 lot. When the deposit increases, say, up to $ 1000, then 0.1 lot can be taken.
This kind of work is very common because it protects the trader from significant risks. Of course, you will not go too far with a small deposit, but the risks will not be high either. It is this approach in itself that is most well suited for novice traders. This will allow them to trade stably and not expose their deposit to damage.
Division of the deposit
This method consists of splitting the deposit into certain parts and using one of these parts in trading. This method is suitable for those who cannot fix their losses on time and correctly manage risks. And all because of this method, the key factor is not profit but potential loss.
For example, you have $1000 in your account, and you decide to split it into five parts, that is, five for 200 bucks. You are keeping the rest of the $ 800 aside for now. You calmly trade on your $ 200 and if you managed to double your capital, then withdraw what you received. If the account was drained, then you can use another $ 200. Using this method, you will learn how to record losses on the account in time.
You must clearly understand that you will not be able to trade stably without proper observance of the capital management rules. Many newbies ignore all the money management rules and end up losing money all the time. The problem is that they are chasing money, forgetting that everything must be progressive and nothing will happen at the click of a finger.