One of the most important aspects of a trader’s day-to-day life is the money in their account, and the moment they lose sight of their account balance things will go downhill quickly. Proper money management is something that many people forget to practice when trading on the online forex exchange. One of the largest “rules of thumb” applied to proper money management with regard to trading is to never risk more than 2% of your account. This means that if you enter into a trade with $ 100.00, and have an account balance of a thousand dollars you will put a stop loss or trailing stop in place that is equivalent to a $ 20.00 loss. If this amount is reached the trade is over, and this is how traders avoid having their accounts drawn down completely.

While it might seem like 2% is not a large risk to some there has to the acknowledgement of avoiding losses that can become quite large later on. Employing strict “acceptable” loss levels is very important when someone moves into the market, if these levels are not established and adhered too an account can be drawn down in no time. One of the most deceptive aspects of the Forex market is a currency’s tendency to “bounce back” and while this is true it does not always happen prior to a margin call. Suddenly using a strict trailing stop and 2% risk factor does not sound so bad, and discipline becomes a whole more important to a trader’s repertoire in the short and long term.

The trailing stop is by far the best way to preserve profits and maintain the bottom line. While it might seem slightly counter-productive to some who are more reckless than some using stop loss or trailing stop levels that are conservative is very important. Once the “smaller” victories begin to mount in terms of the trades being made a wise trader will be grateful they are winning more than they are losing. In fact even if you only win 51% of the time when it comes to trading you should be jumping up and down for joy, and this is because in fact you are on your way to becoming profitable. Any victory, no matter how small is a very large one when it comes to the road to profit, in the Forex world winning even 60% of the time can add up to some very, very big money.