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Sharks and piranhas : Elder said “The goal of money management is to accumulate equity by reducing losses on losing trades and maximizing gains on winning trades.†and he affirm that Everyone in the market (competitor traders and brokers) want to eat your money, they have two ways to eat your money: 1- A big single shark bite that wipe of all or the most of your capital. 2- A series of small piranhas bites that none of them is lethal alone but which together strip an account to the bone. The 2%-6% rules is the Money Management method that protects you from the sharks and piranhas. The first thing you should do to keep your balance away of the sharks is to limit your lose at any trade to 2% of your equity. If you have 100,000 USD in your trading account. So, you have to risk 100,000 x 2% = 2,000 USD in any of your trades. You have to set your stop loss to this level and you have not lose at any trade you make more than 2% of your equity. Some of professional traders use less than 2% but no more than 2%. Whenever you make a loss or a profit you have to recalculate the 2% of the equity to know your new maximum risk per trade. For example if you made a profit trade and your account now is 110,000 USD, your maximum risk will be 2,200 USD. At the other hand if you made a loss and and your account now is 90,000 USD, your maximum risk will be 1,800 USD.
tip from kickforex
As well as the economic outlook for the UK, which is more of a longer term indicator for interest rate movements, it is the currency and the money market which will give you the best short term indicator. FOREX: Money MarketsThe money markets are basically the commercial side of the financial industry, the area where lenders and borrowers are brought together. Via a number of different means, the money markets are very sensitive to what is going on at ground level with regards to the economy, outlook, prospects, etc. These means include, rumblings form contacts at the Bank of England and actual lending transactions from the Bank Of England – which seem to follow certain patterns prior to interest rate changes. Seasoned market observers are able to read the signs, and you will very often see “money market rates†moving away form Base Rates, and indicating the future direction of rates. Currency Markets Currency markets are basically the basis for UK companies trading abroad, and foreign companies trading in the UK. These rates can have a major impact on local currency denominated profits when UK companies convert back to sterling and overseas companies convert back their own currency. While the majority of figures which are announced in the UK press refer to the UK economy, overseas inward and outward investment is vital to the success of the domestic UK economy. It is therefore vital the currency rates are supported in order to arrive at the “correct†optimum level. The level which allows UK companies to be competitive overseas, and also encourages foreign investment into the UK. Just like the money markets, the currency markets are also very sensitive to actual and potential changes in UK base rates, and currency rates are often prone to movement ahead of changes – offering another useful indication. To the naked eye it may seem that interest rate changes are decided at each monthly meeting, when in fact they have probably been materialising for months, only requiring final confirmation. The transparency of economic data now a days has allowed a number of market observers to develop an understanding of the signs associated with interest rate changes. It is just a case of understanding what and when the markets are communicating. Article by: Tosif Patelآ
Forex market is a non-centralized market. There is no common market place for Forex traders and there is no so-call â€کstandard’ in foreign currency exchange price. Different Forex dealers offer very different deals to their customers. As an individual FX trader, you depends solely on the dealer to make a transaction in your trades, thus picking up the right dealer is extremely crucial in your risk. You may wonder how does a faulty dealer can cheat on your money as all investment call have to go thru your decisions. Well, here’s a typical example: Often a bad dealer is not totally scams. They are smart persons that trick money from traders that are not well-aware. These dealers, often known as retail market makers, will often encourage their clients to trade on margin and set stop loss orders, which allow the market makers to close out trades almost at will during busy markets at prices they have set. If the market maker does not offset the trader’s position, the loss generated when a stop loss is triggered becomes the market maker’s gain. Trade prices are easily skewed one way or the other depending on the retail trader’s position, which is known by the market maker. Traders can be encouraged to take risky positions just before major economic announcements. If all else fails, the market maker can quote extreme prices (known as spiking) to trigger stop loss orders while the client is at work or asleep. The vast majority of retail FX traders are not profitable. For those losing retail speculators, much of the funds they had on deposit will be, in some form or another, transferred to the market maker. |
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