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Increase returns on the system that you’re currently using for trading. Use our Real-Time Risk Management/Order Entry Add-on to increase order entry time & efficiency while reducing calculation errors & slippage.

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Risk/Money Management
Guide for beginning traders

Risk or Money Management is a topic most traders have little or no understanding, yet has profound influence on the degree of your success and your psychological state while trading. This is a bold statement for those traders already trading and making a little money, but it is backed up by statistical evidence that 5-10% of the traders empty the accounts of the other 90-95% traders.

Further analysis shows that psychology of trading is much more correlated with money management than their relationship reveals. One is having your head right and the other is having your money in order. When a trader has proper money management the risk numbers give them an added security to pull the trigger and cope with strings of losses. For example, at 1% risk you have to loose 100 time straight to lose all of your capital. This is a comforting statement if you have ever back-tested.

Looking at this from another angle, a trader can see a win of 6%, as paying for the next 6 losers at 1%. Therefore, system numbers such as profit factor, consecutive loss, % win, and % return do give psychological comfort, but the real comfort is in position size and money management because systems fail, not proper money management. But how do you keep your risk at 1% when you are trading, or know if 1% is enough to risk.

Every financial instrument will have different tick/pip values and minimum price fluctuations. The stops and entry points will be a different size. The instrument currency may have to be converted into your base currency. This is all time consuming and mentally challenging unless you practice the math equations relentlessly before trading.

Even knowing the equations will not help if you do not have the proper exchange rates. PositionSizer does all this so we will move on to how many % you should risk.

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