Managing and preserving your trading capital is your most important job as a trader. If you lose all of your trading capital, there is no way you can make back the lost amount, you’re out of the trading game. If you make pips, you got to be able to keep those pips and not give them back to…
After journeying across the globe with Newbie Ned, and through some basic position sizing examples, you’re well on your way to becoming a competent risk manager. Now knowing how to set the correct position sizes is only a part of what it takes to become a pro at risk management. The other part is discipline. …
Let’s say you want to buy EUR/GBP and your broker account is denominated in USD. In this trade, you only want to risk USD $100. But you’re not trading US dollars, you are trading euros and pounds. How do you calculate your position size? In this lesson, we’ll teach you how to determine your position…
To make things easier for you to understand, as usual, we’ll be explaining everything with an example. This is Newbie Ned. A long time ago, back when he was even more of a newbie than he is now, he blew out his account because he put on some enormous positions. It was as if…
Now that we’ve learned the hard lesson of trading too big, let’s get into how to correctly use leverage using proper “position sizing.” Position sizing is setting the correct amount of units to buy or sell a currency pair. It is one of the most crucial skills in a forex trader’s skill set. Actually, we’ll go…
Most beginners underestimate the potentially devastating damage leverage can wreak on their accounts. Understanding leverage enough to know when to use it and when NOT to use it is critical to your success! Leverage is a very powerful tool but both old and new traders use it to destroy their trading capital simply because they…
Besides amplifying your losses, leverage also has another way of killing you. It’s a much slower kind of death though, kinda like dying by a thousand cuts. Most forex traders don’t see it coming and by the time they notice it, they’re DEAD. This killer we’re talking about is the associated transaction costs of using…
As a trader, it is crucial that you understand both the benefits AND the pitfalls of trading with leverage. Using a ratio of 100:1 as an example means that it is possible to enter into a trade for up to $100 for every $1 in your account. With as little as $1,000 of margin available in your account, you can trade up…
Hopefully, you now have a better understanding of what “margin” is. If you don’t know what margin is, or think it’s an alternative form of butter, please read our previous lessons. Now we want to take a harder look at “leverage” and show you how it regularly wipes out unsuspecting or overzealous traders. Before…
Margin can be thought of as a good faith deposit or collateral that’s needed to open a position and keep it open. Margin trading gives you the ability to enter into positions LARGER than your account balance. Although buying and selling on margin does not provide leverage in and of itself, it can be used as a form of…