When trading on Forex, it is necessary to know how to properly place your
capital; how to calculate the amount of funds needed to make a trade in order
to obtain sufficient earnings; and if it comes to loss, how not to loose your
entire deposit.
To achieve these goals, there are special equity management methods (money management techniques):
·
No equity management
methods. Most traders,
when opening a position, do not calculate the amount of funds that are being
used, estimate potential earnings or potential loss. This is considered to be a
technique too, but if the capital is not very large to begin with, several
unsuccessful trades will make it completely disappear.
·
Multiple contracts. Opening
several positions on the foreign exchange market on different instruments, for
instance, EURUSD and EURGBP, a trader can earn profit if the price moves in the
right direction. Earnings can be considerable, losses too though.
·
Fixed amount. Depending on the
amount of funds available, a trader decides how much can be put at risk when
opening one or another position. The trader then makes deals not exceeding this
amount.
·
Fixed equity interest
rate. This technique
is similar to the previous one but there is one small difference: the trader
determines the equity interest rate, but not the equity amount.
·
Establishing
correlation between profits and losses. It is necessary to track
statistics on all operations (the amount of losses, profits and the
correspondence between them). When you see the correlation between them, you
can apply what you have learned to your trading.
·
Equity curve trading. Most people are acquainted with moving
averages, which can act like signals for entering the market or leaving it.
According to this method, moving averages (long- and short-term) are used to
forecast trade results. If the short-term moving average of the equity curve is
above the long one, a position can be opened and it will be profitable. If,
however, the short-term moving average is below the long one, it is better to
wait for a while.
Choosing a
particular money management technique of trading on Forex can help you rationally use your money
on the market and earn profit. Money management techniques are used for opening
positions.
