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Should we risk in percentage or in terms dollars
#1
Trading in Forex is interesting only if you know what you are risking in Forex. You do not have to risks your house or your car for trading but you can have a good strategy if you follow our tips and know the difference between money risk model and percent risk model. These two models are very important in Forex and they provide the fundamental knowledge of trading. If you are interested to make money and you do not want to lose your investment, this article is for you. Many traders take the wrong steps and they lose their investments. You will lose your money in Forex and this is what you expect. If you lose your investment for wrong trade, it is the time that you change your strategy. Understanding the concepts of two models are simple and they will give you the foundation for your career.
 
When we think about Forex trading we think about millions of dollars. But if you look at the professional traders in Singapore then you will see a different scenario. They are more concern about their investment rather than their profit factor. In fact, the majority of the traders don’t know how to save their investment in the extreme level of market volatility. The moment they step into the trading world they are biased with millions of dollar profit. Trading CFDs is not all easy rather it is one of the most sophisticated tasks in the whole world. You need to understand how this market really works or else it will be impossible for you to develop your trading career.
 
The money risks model
This model can be explained from its name. This model is based on the foundation concept that traders need to take risks in their money. It is not really important how much money you have in your account. You can a big Forex trader and start your trading with the thousand-dollar account. This money model focuses on the amount of dollar that you are willing to risks in your trade. If you want to risks 10 dollars in your trade, you will only risk 10 dollars. You will never lose more than this amount that you have fixed.
 
The percentage risk model
This model is based on the percentage of your account. We know that percentage is calculated based on how much money you have in your account. 1% of your account can be 100 dollars if you have a big account and 1% can be only 10 cents if you have a small account. In this percentage risk model, traders take risks in their percentage. This is riskier than the money risk model. If you are taking only 1% risks in your trades, you will lose a quarter of your investment if you lose 25 trades. When you have the chance to lose more trades in your money risk model, percentage risks model increases the money of your loss and also the risks of losing your investment. This is the model that you need to stop using and most traders use the money risk model. Take risks in money, not in percentage.
 
Money management is one of the key ingredients which will save your investment in the online trading world. If you risk in terms dollars or percentage, you will have to face losing trades. You need to ask yourself and find your risk tolerance level. For instance, a scalpers might feel comfortable by losing 5% of his account from a single trade. But if you consider the conservative long-term traders then they might not feel comfortable by losing 2% of their account capital in a single trade. You need to have strong mental setup to accept the losing trades and wait patiently for the next possible trading signal. Never rush in your trading career as it will slow down your performance significantly.
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