What is money management? Money management, in simplest of terms, is the handling of money in such a manner as to get the most out of it. This means saving when there are risks and investing when there are opportunities. The basic concept of money management remains the same even when it comes to the forex Australia market, albeit with slight differences.
In the forex Australia market, money management is not about knowing when to spend and when to save or how much to spend and how much to save. Instead, it is using the account equity in such a manner that damages from losses are kept to a minimum and the returns from profits are as high as possible.
The trick to great money management is to have the right foundation to base your efforts on. This means being aware of the core money management principles and implementing them through various techniques in the forex Australia market. Consider the following principles.
Stop Loss Orders Are Paramount
Stop loss orders are used when you want to prevent losses from blowing out of proportion in the forex Australia market. These orders essentially are instructions to the system to close an open position if its value drops to a certain point so that it does not accrue heavier losses. Stop loss order placement is an art form by itself and can involve everything from market conditions to position sizing.
Leverage Usage Must Be Balanced
It is true that if you use more leverage then the size of your potential profits will increase. However, it is also true that higher leverage would mean that your potential losses will be more damaging. The trick is to strike a balance between increasing the risk and rewards.
This means that you cannot use too much leverage in your trades in the forex Australia market. You should ideally look to calculate the best possible leverage level in terms of your account size and risk tolerance.
Accept the Inevitability of Losses
The reason why stop loss orders must be used while trading in the forex Australia market is that losses are inevitable and must be prepared for by every trader. In fact, traders who do not accept the inevitable nature of losses tend to lose their investments.
Always Protect Profits
Profits tend to be very intransient i.e. they can show up and disappear very quickly. This is why you have to protect your profits with the help of trailing stops in the forex Australia market. These orders are like stop loss orders except they follow the increase in the value of your position, so if the trend turns the accrued profits are not lost.
Never Risk All Your Savings
Owing to the fact that the size of your potential profits will increase if the money you put in increases, you may get tempted to invest all your savings. However, this will also increase your stress levels and affect your performance which is why it should be avoided in the forex Australia market.
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