What is Meant by Money Management

'What to do', 'when to do' and 'with how much money;' these are the basic questions which every trader has to think about before he/she starts trading. Successful Forex trading requires in-depth knowledge of price forecasting through which traders know exactly 'what to do,' (which currency to buy, which currency to sell, etc.). After selecting the currency, the next question is 'when to do,' (means the right time to enter the market to buy the pair). Last but not the least, for successful trading, money management is the key to earning long term profitability in the Forex.
--- advertisment --- Proper management of money- No trader can make profits in the market without the proper knowledge of money management. Money management helps traders gain an edge in terms of lowering risk exposure while still staying in the green. Nobody can control the market, but they can control the amount of money and risk on each and every trade that they make. Money management is a skill that traders have to acquire with experience and patience. When should the lot size be doubled? How to manage the capital with risk? How much should I risk on this trade? These are some of the key questions, which every trader wants to be clear about, before jumping in to the market. Traders can apply money management techniques, through the following simple rules:2 % rule - Most of the traders in the market follow the 2% trading rule, which means they exit from the trade when the pair goes below 2% of the capital.For example, if one trader invested $1000 in the market, then he/she should decide to exit from the trade, when their trade value falls by $20.Lot size - Lot size plays an important role in trading. Some traders believe in entering the market all at once (or buy lots at once), while on the other hand; some traders believe in pyramiding or averaging, which refers to the incremental purchase of lots, when the market is moving in their favor.Setting a financial plan - In today's world, financial planning is very important, whether it's an individual or a family, corporation or sole proprietorship; all of them need to manage their money. Everyone thinks about their children's education, marriage and retirement. A financial plan is a plan in which a budget related to future saving and spending is laid out. Everyone wants to gain profits in his/her life, whether it comes from business, investment or trading. Forex is a nonstop market and a very good option for those who want to earn a few extra bucks after their day job. Key Takeaways
In order to be successful in trading, novice traders have to follow the three step method:
A) To conduct research to forecast future price trend on the basis of the fundamental and technical analysis. B) To make trading plans, as per their research as well as financial situationC) Conduct proper money management and always go with their trading strategy.