Forex Trading was introduced to me about 23 years ago by a close friend who was (and still is) a great stock trader. People were used to investing in stock market since tens of years ago, but they could not do it through the computer and the Internet because almost nobody had a computer at home and the Internet was not accessible to the public yet. We heard about forex trading I think a few years after personal computers and then the Internet found their ways to the homes. Not that people could not trade currencies at that time at all. There were so many companies, banks and… that were used to do it, but ordinary people like us could not do it, and did not even think about it. Personal computers and then the Internet changed everything. We could sit at home and trade stocks and currencies.
By that time, I became familiar with several investors and we made a big team of stock traders who many of them started trading currencies ( Forex Trading ) later when forex trading could be done through the personal computers and the Internet. Our team grew and we made a lot of connections. We helped each other, shared our experiences and knowledge, and even our trade setups and signals and this benefited a lot of us, so that we grew our wealth.
Money Management Strategy
Since the very first days, trading with a shared account was the idea of many of us. Trading with a shared account, not for the purpose of making a shared profit for each of us, but for the purpose of charity. Each of us had his/her own account, but we wanted to have a shared account also to trade our trade setups, grow it and use the profit for the charitable purposes.
That was a great idea, but there was a question about the size of this account. Some of us wanted it to be a big account, but some of the others disagreed. Finally, we came to this conclusion that we open a $1000 account for the beginning, just to see how it goes. We did it. We opened a $1000 account and then started trading with it using our shared trade setups. The account turned into $100,000 in 14 months. That was a great achievement, not because of turning a $1000 into $100,000, but because of the lesson we learned.
Before, we thought a professional and full time forex trader had to have a big account like $500,000 (or a million dollar) account at least, and make a 1-5% profit per month ($5,000 to $25,000) to cover the expenses and have a good or probably luxury living as a professional trader and investor. However, after having a $1000 account and turning it into $100,000 in 14 months, many of those professional and full time traders who were used to have big accounts, changed their minds and withdrew most of the money they had in their trading accounts and left only a small portion of it. They invested the money they withdrew in some other markets like real estate and traded the small portion of the money that was left in the trading account, to grow it to a reasonable amount of money and withdraw it again.
Forex Money Management Strategy Secrets
That was a great forex money management strategy. The money that was invested in real estate was not at risk anymore. Even if you risk only 1-2% of your capital in each position, still your whole trading capital is at risk:
1. There are some occasions that the stop loss or target orders can not be triggered especially when the position is big.
2. Or, sometimes you take a huge position by mistake (I know a Japanese trader who did this and lost a lot and then … himself. It was called the “fat finger” mistake after this event, because he was used to get big fat fingers and people said because of the fat fingers he had he pressed two buttons with one finger at the same time and so he took a 10 times greater position).
3. Sometimes the broker or the bank goes bankrupt and you lose the money.
So it was a good idea not to put all the eggs in one basket, and invest in some other safer markets like real estate.
The money that was invested in real estate not only was not at risk anymore, but it made a great profit after few years.
The money that was left in the trading account was used to be turned into a reasonable wealth that could be withdrawn without any problems.
One of us who was used to have a million dollar trading account, withdraw the money and left only $10,000 in the account. For him, who was used to have a million dollar account and make a reasonable profit every month for several years, $10,000 meant nothing. Trading with a $10,000 account had no risk for him at all. He turns his $10,000 account into a million every 2-3 years, while his other investments are also in profit without any risk. So he makes a reasonable amount of money through trading while there is no risk for him at all, and he is making money through his other safe and secure investments too. He has raised his trading capital to a million dollar few times so far. This is what many of our other team members are doing, but just with different amounts of money and account sizes. This is what I have been doing for several years too.
So he makes a reasonable amount of money through trading while there is no risk for him at all, and he is making money through his other safe and secure investments too. He has raised his trading capital to a million dollar few times so far. This is what many of our other team members are doing, but just with different amounts of money and account sizes. This is what I have been doing for several years too.
Forex Money Management Strategy
Now, compare this to someone who opens a $20,000 account while that money is the only saving he has. Or someone who is jobless and has no income, but opens a $1000 account while he is already in trouble paying his bills. Is this a wise decision and investment? Can you call this a “trading business” or “investment”, or it is just a blind gambling that will ruin everything finally?
One of us who had a $7,000,000 account did not follow this money management strategy. He wiped out his account on 2008 when EUR/USDwent down like crazy. He was used to taking 100 lots positions. The stop loss orders did not work and he lost all of his money.
The wise learns from the others’ mistakes. The fool learns from his own if he learns at all.
Maybe today is the right time to revise your money management strategy and choose a safer way to trade and invest. Ask yourself whether you are trading forex to make a living or you are doing it to ruin your life.