FOREX TRADING FOUNDATIONS: MANAGING MONEY AND RISK

To mark Admiral Market’s first birthday, Chris explains the importance of clear money and risk management in a trader’s first 12 months.

Profitability within the first year of Forex trading is a realistic and attainable target for novice retail traders. But this outcome is dependant on many different factors. As an education Forex strategist, there is one aspect of trading which many beginners fail to develop: a professional money and risk management strategy.

It sounds daunting, but developing these systems and strategies is much easier than one might think. Those traders who take the time to develop a methodology of protecting their capital are demonstrating one key trait which separates the winners and losers in Forex trading. It’s called ‘professionalism’. Those who treat Forex as their profession always do better than those who dedicate no time to performing the basics competently.

So how does a first-year Forex trader go about developing a money and risk management strategy? The first step is to establish the correct mindset for optimum results. 

Forex trading is a business, not a get-rich-quick scheme

Sometimes people embark on a journey of Forex trading in the hope of making significant money in a short space of time. It’s understandable, as the internet is filled with hundreds of websites from Forex traders who claim to have quadrupled their income by trading the currency markets. But what many people fail to understand is that Forex trading is a skill which takes practice. It can be compared to learning another skill, such as language or musical instrument. To reach a competent level in these areas, people need time to master the fundamentals. It’s exactly the same with Forex trading. When treated as a profession, Forex trading can yield significant profits – but only over time. This leads me to my next point about the importance of mindset when it comes to trading Forex. I always encourage novice retail traders to treat their trading as a business. Establishing this intention from day one is important, as it reminds the trader in question that preparation is everything when it comes to making pips. Believe me when I say that taking short-cuts when preparing money and risk management strategies always leads to negative results. Another way in which traders can set a professional tone when tackling the markets is by evaluating how they use their time. It should always be used as a commodity. Traders who regularly schedule time to learn and master key trading concepts are the ones who experience success. It’s another way in which traders can demonstrate that they are serious about a career in Forex.