3 ways to open a deal on the foreign exchange market
Perhaps every newcomer to the foreign exchange market has heard of money management. It would seem that what is so difficult about money management? However, more than one trader has lost all of his money because of improper money management.
Manimagements methods are extensive enough to be considered in one article - today we will focus on three ways of entering the market, or more precisely - the size of the position to be opened.
Method #1: "On the whole cutlet."
The name of the method comes from the slang name for a bundle of bills. The essence of the method "On the whole cutlet" is to open a deal with the maximum available volume without setting stop loss orders.
The benefits of this approach are obvious - with a large amount of leverage you can get a fabulous profit in a short period of time. And if you enter "the whole cutlet" several times, the deposit in general will grow exponentially.
It should be noted right away that this method has nothing to do with real trading, but is more suitable for gambling.
Why, of course, you may ask? Let us explain with a simple example:
- Your deposit is $100.
- Having opened a deal "for the whole cutlet" you made a profit of $200 - your deposit is now $100 + $200 = $300.
- Having entered the market with a $300 trade, you again made a profit, but already $400. Accordingly, your deposit is now 300 + 400 = 700 dollars.
- With the next trade, already on $700, something went wrong, the price went against you. As a result, your deposit was 700 - 700 = 0 dollars.
Method No. 2: Fixed volume of transactions
This method of entering the market is that each transaction is opened with a volume that depends on the size of the deposit. In this case, if the deposit increases, then, accordingly, increases the volume of open transactions.
For example, the following correspondence is established - $100 corresponds to 0.01 trading lot. That is, if the deposit is $ 1000, then transactions are opened with a volume of 1000/100 x 0.01 = 0.1 lot.
Let's assume that as a result of a number of profitable trades, the deposit has grown to $1,100. Correspondingly, the next trade will have a volume of 1100/100 x 0.01 = 0.11 lots.
The fixed-volume method is widespread because it relieves the trader from calculating risk parameters for each trade opened.
Method #3. Splitting the deposit
The method of "splitting the deposit" consists in splitting the available amount into several equal parts and using only one of them.
It is best suited for those who do not know how to fix losses and manage their risks - no matter if they are beginners or experienced traders. And that's because for this method the key factor for making decisions is not profit, but loss.
For example, you have $1,000 that you decide to use for trading. You divide this amount into 5 equal parts and open a trading deposit of $1000/5 = $200 (20% of the principal amount). The other 4 parts of your money ($800) remain in your pocket (e-wallet).
You are quietly trading on this deposit. Managed to double the deposit? Withdraw your profit. If the deposit as a result of your trading ended, then open the next deposit of 20%, but from the remaining amount. That is, your new deposit will be $800/5 = 160 dollars. Drained and this deposit? Open one more, but now at 640/5 = $128.
Thus, you will learn to fix your losses and not to allow complete loss of all your money. Having learned to fix losses in the amount of 20% (and for someone it can be 15% and 10%), it is already possible to dispose of all available sum for trade.
We've probably said it 1000 times, but we're not too lazy to say it 1001 times - always remember that without following the rules of money management, profitable trading is simply impossible.