You must have wondered when you first opened your account in Forex exactly how people make a profit in this industry. We are not surprised because we also have the same question in our mind. If you look at this market form a planning viewpoint, this sector is very boring. You do not have anything to do and you cannot even socialize. You do not have any colleagues and most importantly you also do not have any boss. Freedom is necessary for our life but too much of freedom often takes us away from our track. People think profit is made through excellent strategy and perfect execution of the trading plan. It is only partially true that will come into your knowledge after you have finished reading this article. Remember the people who are with the obvious trends but never get to make a profit. Before you think we are trying to puzzle you, read this article and you will know how profit is made actually made by these people. It is not through your superhuman plan or your god-gifted knowledge, but rather it all results from proper money management.
The ultimate Holy Grail
Do you know there is a holy grail in the investment industry? Many experienced traders in the UK often consider perfect risk management plan as the ultimate Holy Grail. Majority of the traders are blowing their account since they take a huge risk in each trade. They simply don’t understand the importance of proper risk management in each trade. If you take 1% risk in each trade and aim for 3% gain, even with a 50% win rate you can make a huge amount of money from this profession. But learning the art of money management is not so easy.
Some professionals believe it takes years of practice to learn the complete rules of trade management. Being new to this profession you should use the spread betting demo account to protect your investment. If you start to practice with your real account you might lose a significant portion of your investment during the learning process. Under no circumstances, should you trade the live market unless you have proven yourself in the demo environment. Always make sure, you not setting unrealistic expectations as it will force you to overtrade the market.
How money management affects profit growth?
Now you have known that money management is the secret of your profit booster, you must be dying to know how they can elevate your trading form ordinary to exceptional. Imagine you are a Forex trader and you have been trading for six months. You have deposited 100 dollars but still, as a trader you are only making a small profit. If you look closely at your trading style and observe your records, you may find that you are losing more money than you made. This is true for many people as they did not know. They make $10 of profit every week but they are losing 12 dollars weekly. If you do some calculation you will find this simple error of managing money has been costing them all this time.
What we have given was the simplest form of an example of how it can affect your profit growth. Even with profitable trades, it can still push you on the loss sides. This industry does not turn out as you plan and it will surprise you with volatile trends. The effect of mismanaging your capital can be devastating. Not only can you lose your capital but your career can be at stake. This is an online market and if one trade sweeps away all of your investment, you would be finished in Forex. A bad trade can take away all your profits in Forex. Focus on how you should develop your risks to reward ratio, how you are going to set your stop-loss and this way you can manage your investment.