Is it true that true that you should limit any one trade to 2-5% of your forex account?

4 Comments

1. huskie - says:

   December 31, 2009 at 11:27

   The name of the game in Forex is Capital Preservation. Let’s say that on Friday, you bought the Dollar against the Yen (USDJPY) in a standart $100k lot on 1% margin – that’s an investment of $1000 from your account. Here’s a chart: http://forex.tradingcharts.com/charts/index.php?sym=USDJPY&data=b&tz=GMT&type=b&cs=1&period=1h&defdates=1&bmonth=Mar&bday=9&byear=2007&bhour=13&bmin=25&emonth=Mar&eday=9&eyear=2007&ehour=13&emin=&Img+Type=png&drsi=0&ma1=0&dmacd=0&ma2=0&bol=0&dstoch=0&Submit=Submit
   At 8:30am (EST) the US Unemployment numbers came out and the dollar rose to 118.2 Yen from 117.4 in less than 1 minute. It’s likely that price gapped and even if you had a stop in place, the best available price may have been well above your stop price. Let’s say your stop was executed halfway through the rise – 118.6 Yen. That 0.4 Yen rise would have given you a loss of roughly $340 – over one third of your investment.

   If you limited your trade to 3%, that would have been a 1% loss of your entire account. If you had traded 30% of your account, you would have lost 10% of your entire account in that one trade.

   It’s great if you had bet on the dollar going up but not so good if you bet on the dollar going down. People that bet big trying to strike it rich invariable wipe out their account quickly. The idea is to survive a bad day to be able to come back and try again the next.
2. yourforexinvestor - says:

   December 31, 2009 at 11:27

   It sounds like you are like me where many times you find yourself to busy to dedicate the time necessary to trade in the forex market. I personally like to trade at about 7-10 % margin. But it really does depend on how much you have in your account. I have a lot of clients that trade at 3-4% margin but they are working with 6 figures +. For the average trader you should never exceed 10 %. As far as having a lot on your mind I am like that as well and that is why, when I stumbled upon the FreedomRocks system I was in heaven. I was spending hours a day and now I am spending only a few minutes a day. I have seen my profits increase and my life simplified. Two sites to check out: http://www.babypips.com and most important http://yourforexinvestor.com

   I hope this helps,
   Brandon Wells
   877-773-5345
   http://www.yourforexinvestor.com
3. Charlie Mike - says:

   December 31, 2009 at 11:27

   well if Forex Trading is a Triangle. Money & Trade Management and Trading Techniques forms the base points. With Trading Psychology at the Apex. Yes Money and trade managememt is important. Whether 2% or 5 % of account equity depends on factors as volatility and the size of trade. On a 10,000 equity, 5% is $500. Depending on your trading and position sizing, $500 is not sufficient. Over the years I have read probably more books than I can count, I have compiled the best ones here, especially by Dr Alexander Elders check it @ http://www.geocities.com/lcming/Forexbooks
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   December 4, 2011 at 12:49

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