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Previously, we discussed the characteristics that make up a good trading method.  In addition, we mentioned what the method needs to emply in order for it to be considered a complete method, like the methods we found in the Forex Income Engine 2.0.

Today, I would like to add to this discussion by talking briefly about risk management. This is probably the one part of trading where 95% of Forex traders make mistakes and lose money. By using trading strategies you can simultaneously manage your risk which will decrease your losses and protect your account balance.

Now what does all this mean? Why is it important?

First, the majority of Forex traders make simple trading mistakes.  They take too large of a position and open themselves up to serious and steep losses if the markets move against them in the opposite direction. Secondly, forex traders fail to protect their ENTIRE account by allowing just ONE trade to put their full account balance in jeopardy and at risk.

Lets look at an example of this, even though an extreme example:

In our example, we will say that our forex traders account balance is in the amount $10,000. The forex trader takes a 5 standard lot forex trade on the EUR/USD pair. The forex trader now has at least $5,000 ‘margin’ at risk, which is 50% or more of the forex trader’s ENTIRE account balance.

In this example, for every 1 point that the market moves against the forex trader, the trader will lose  1/2% of the total account balance. At first glance, that may not seem like a lot. However, should the markets move a total of 50 pips against the Forex trader, and the trader then exits the position, the forex trader’s total loss for the trade would be an ASTOUNDING $2,500! Which is 25% or a quarter of the trader's entire account balance. This is a perfect example of poor risk management and surprisingly enough it happens frequently and often leads to a complete wipeout of a forex traders trading account.

Moving along, lets go through how we calculated the loss amount in the prior example.  1 pip for the EUR/USD pair is equal to $10 on a standard lot trade. A 50 pip loss equals an actual loss of $500; and remember our example forex trader had traded 5 standard lots which would equal a whopping loss of $2,500!

Instead, any good trading method should teach you very precise guidelines for incorporating money and risk management into every forex trade that you open.

Money Management should involve the distribution of a forex account among the various trades a forex trader opens. For example, forex traders should never trade their entire account or even close to it, on a single trade.  In addition, they should rarely have more than a few open positions. By using multiple positions, the forex trader disperses the risk out among each of the forex trades they have opened.

Risk management will be the max risk for any forex trade that is executed.  It should also limit the impact of a losing Forex trade on the trader’s account balance.

We can accurately sum up that any forex trading method that you are considering to use should clearly explain risk managment and how it is used in conjunction with the trading method.  If the trading method fails to explain this, or is unclear in any way, you should avoid this method and look for a new method to use.  One that clearly explains risk and money management.

To Find out how Forex Income Engine 2.0 uses money and risk managment in conjuction with the 3 trading methods revealed, visit our Forex Income Engine 2.0 Review site for further details.

Technorati Tags: forex income engine 2, forex income engine 2.0, forex income engine 2.0 review, forex traders, forex trading, forex trading methods

Being a novice Forex trader requires you to get a currency demo trading account for many important reasons. So you have made your decision to start trading on the Forex market and that is great. There is plenty of things going for it and in these uncertain times where economies are lagging, traditional commodities have lost their lustre. A recent revelation of a scandal on Wall street revealed that hedge funds might die out because $50bn swindled away by the former Nasdaq chief. Banks like PNB Paribas and HSBC are direly affected. The world economy has slowed to almost a halt and there is news that there will be the biggest cut in oil supplied known to man.

Many have lost faith with stocks and bonds and it makes perfect sense that investors would not want to put money in a place that will not multiply.Within a few months, the world economy went from being in the black to surpassing the thin red line that many financial analysts have drawn many years ago.Bankruptcy hits the finance powerhouse – Lehman Brothers and Freddie Mac. Citibank had the biggest bank bailout ever recorded – done only because their collapse would shudder across the entire continent. Investors are now no longer just jittery, they are afraid to put their money in markets that were once thought to be of low risk and moderate gains. So why the Forex market then.

The risks are higher in the FX market, due to the level of factors affecting the currency shifts and market psychology. But beneath that dynamism is a market that is also forgiving, highly liquid, customisable trading options and almost no steep financial or any sort of barrier to entry. This is why so many novice Forex traders have sprung online, most of them are students, the retired and working adults looking for an alternative revenue stream. They could also be those investors who had been involved in other commodity markets – but have turned their attention away from lacklustre performance. If you are one of those new FX traders, it is good to get your hands on a currency demo that is easily available from online brokerages, before you hit the market for real.

Demo currency trading programmes helps because it allows you to get the ‘feel’ of trading by using dummy money and dummy accounts.This is ideal, as is exposes the new trader to the basic machanics of the X market and an almost real hands-on experience. The problem with many novice investors is that they just simply jump into the market and hope for the best. This ‘try before you buy’ mantra set by these currency demo trading programmes is that the sort of thing that makes well thought out decisions. So if you are ready to dive into the world of Forex market, try on Currency Demo Trading first.

Technorati Tags: currency demo trading, forex traders, lehman brothers