Every trader needs to have this piece of information next to their heart that “everyone at one time loses money in forex trading”. Do not be carried away or deceived by people who post screen shots of trades without loss, such people try to woo newbie to either register with a particular broker or pay for their course or seminar. I call such people forex marketer because all they try to do is to earn commissions from your trades or money from the courses or seminars which they sell. They fail or neglect to give you the right knowledge to survive in this business.
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Just like any other business around the world, the aim is to make profit while the company stays healthy (alive) and that is the duty of either the board of directors or the CEO or probably the owner of the company to do.
I can comfortably say that in forex trading we do the same; it is the responsibility of the trader to make sure that his trading account stays healthy (alive) while it grows gradually. Many traders fail to take this into consideration while trading. Some risk as high as 70 percent of their trading (draw down) just to make a few pip of profit. In doing that, their trading account is no longer healthy and is at the verge of dying.
Do you think a business owner will put his staffs, stake holders, and the reputation of his company at risk of bankruptcy just for a few hundred dollar profit. No way! Remember that forex trading is a business and should be treated as such.
In this article I will be explaining why some traders barely survive in the forex business and how to avoid dying in it.
First of all, we will discuss the most important of them all which is Money Management.
If not all, but more than 90 percent of existing and new forex traders neglect the essence and importance of money management as I said in my other article: reasons why forex trader blow their account. I discussed how I was able to stay in the business a lot longer than my peer this is because I applied the concept of money management.
What Is Money Management?
I will define money management from the investopedia definition because it best defines it “money management is the process of budgeting, saving, investing or otherwise overseeing the capital usage of an individual or group”
With the above definition, we can pin point some few words which are critical in terms of forex trading we have “budgeting, saving and investing which can be equated to the capital usage of the individual or group. When a trader opens a forex account and deposit, his sole interest is in making profit and nothing else, he is willing to sacrifice 90 percent of his account just to make that profit. They do not take any of the above words into consideration.
I always call forex trading a business because that’s what it is. When one start to trade, one need to decide how much he will deposit into his account. we can all agree that at least once we have seen the disclaimer at the bottom of a brokers website site that state “forex trading is dangerous and not suitable for all investors you can lose more than your initial deposit” .
Traders most times deposit more than they could afford to lose because they have this false illusion of making up to 300 percent of their first deposit in a month or less. It might be that they saw an online advert saying “make $1000 daily” or the false impression they got from these forex marketers. Traders get carried away that they forget to budget how much to deposit, when they make their first profit, they get “so excited” that for once they think they are demi gods and the market will surely obey their every wish. They start living an extravagant life without having any saving for a rainy day then they start failing to see the future nor think of investing in other market, commodity and bond or even in other business ventures.
I will use myself as an example on how people should take forex trading to be, when I first got to know of forex I never bother to deposit more than I could afford to lose. All I did at the initial stage was to understand the basics and fundamental knowledge of “how forex works”. After some weeks I opened my first demo account. When I was confident enough to test the waters (forex) I deposited $100 which was small but I didn’t want to test the water with both my feet that’s what I refer to as budgeting. Budgeting is necessary because you don’t want to use more money than you have in your bank account. I had my ups and down but never blew that account (margin call).
As weeks turn to months I started yielding profits and had them saved up, after some time I decided to expend my forex trading career, invest in long term treasury bills and help some of my friends by giving them a startup capital which I automatically got a certain amount of the company as a stake holder so I invested, most multinational organizations are able to survive in any economic condition because they invest in other smaller organizations round the world.
So in summary, I applied the money management concept into my forex career, that’s what got me where I am today, I must confess that I was a bit afraid about losing everything but I had to stand up and hold unto what I believe. Many people are afraid of losing anything and that is what has kept them where they are today, until we accept to take responsibility of our action then we are never going to achieve anything in forex.
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