The basis of successful trading activity on the Forex is the ability to rationally allocate capital, to consider what amount of money to use to buy an asset and in the case of losses not to lose the Deposit. In this article, we will explain the main principles of distribution of personal capital that will help you while trading on the Forex market.
Principles of capital management at Forex market:
1. Funds invested in the transaction or the acquisition of the asset shall not exceed 50% of total equity.
Based on the situation we can say that this rule works under the influence of the calculation of the margin required for open positions. Therefore, in order not to lose all personal funds in a single transaction, the size of the required reserve shall be not less than half of the total capital. Many experts believe that the percentage of invested funds should be even less – from 5 to 30%.
2. Only 10 – 15% of the total capital can be invested in a single trade.
The cause of most bankruptcies is that traders take the risk while driving prices begin to invest in a single deal, however, when the price trend starts to change dramatically, the trader immediately loses 100% of its capital.
3. In a risky deal to invest no more than 5% of the total amount of personal capital.
To risk you need always of the mind that if you are completely unsure of how to safely invest in a certain asset lay not more than 5% of the total amount of their savings, not to be in a big loss.
4. Guarantee fees should not exceed 20-25% of total capital.
Rational allocation of Finance is the ability to place funds so that one large transaction could not ruin the trader, as there will be a number of other transactions that compensate for the loss a new profit. This position is justified by the rule of diversification of funds.
5. It is necessary to consider the degree of diversification of the asset portfolio.
It is understood that the best way to protect capital is to diversify, so as always we need a reasonable compromise between concentration and diversification. Rational allocation of capital is possible only with the simultaneous opening of positions in different markets.
6. To select for yourself the level of stop-loss orders.
The task of stop losses is to protect the trader from a loss of finances or alternatively in order to provide additional revenue.
7. To calculate the ratio of losses and profits.
The ratio of losses to profits has to be 3 to 1 is the norm, which is the balance for losses, even if the market goes against the trader's direction. In case of impossibility of implementation of standards from entering the market need to limit myself.
8. Trade multiple positions at once.
Starting to trade in the market, trader needs to learn the difference between contracts for trading and trending positions. The trend being with quite liberal stop orders, which allow us to maintain these positions even in conditions of price adjustment. This position allows the trader to get the highest profit. Trading positions are intended for short-term trading and are limited to a fairly hard stop orders