Managing Forex Losses
One of the key principal of successful Forex trading is to keep
your losses minimized and limited. When the trends of the Forex
market are going against you, turning you towards losses, it is
ideal to go in for small loss limits so that you can pass this
phase safely, without turning bankrupt.
Small Forex losses can sometimes help you survive that period of
the market, when it is moving against you, and also help you to
still be placed firmly in the market, when the trend finally turns
in your favor.
The easiest and proven way to limit your Forex losses to minimum
is by fixing beforehand, the highest acceptable loss per trade
keeping in mind your total Forex budget for trading, prior to even
opening a Forex position.
The highest amount of capital loss is what you can afford losing
easily on a trade or deal.
In other words, this can also be known as a “Stop Loss” order,
which is considered significant amongst the many techniques of
good money management strategies.
Making sensible use of this money management technique will make
you stand apart from the several other traders out in the Forex
market, who have been losing all their trading cash to the market
just because they didn’t feel the need to adhere to efficient
money management strategies to their Forex trading system.
If a trader does not follow the correct money management rules
while trading Forex, there are chances of him losing more money
than he can afford to. For example, if a Forex trader, with a
total trading budget of $1000, starts to trade and makes a deal
worth a $100, it would then perhaps be tolerable for the trader to
suffer a loss once.
He would then go ahead and trade another $200 for another deal,
and this time again he loses, perhaps a little low with luck and
thinking this, he again, for the third time, tries to trade
another $200 on a deal, just to suffer another loss.
Now, he had a total of $1000, out of which he has already lost
$500 straight, and is now left with only another $500. but instead
of stopping and quitting here, he might still carry on to trade
again, thinking that after three consecutive losses, he is bound
to be lucky this time, and thinking this, puts in another trading
offer for $200 more.
After betting $200 on this next trade, his capital could be
reduced to $300. The probability of making profit now is virtually
none, because, just to get back almost three-fourth of the total
amount that he has lost, he would have to gain at least 3
consecutive profits trading, for which, he is left with not much
With his finances finished, even if he is actually getting lucky
with trading this time, he really doesn’t have any more money to
play and recover at least all that he has lost, let alone making
This situation would not have occurred if the trader had preset
the maximum loss amount which he could afford, and stuck to it.
The reason for this disappointment was that the trader jeopardized
too much of his trading money, without thinking once of applying
good money management techniques to the trade. Trading the whole
Forex trading funds just for losses no way makes a good trading
In fact this can lead a trader to a position where he does not
even have enough funds left to make a wiser deal and recover what
he has lost!
Always keep in mind, that a significant rule of money management
is to keep your losses to a minimum so as to limit your losses and
increases your profit with retaining your funds for a better deal.