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Money Management
- 1. (C) Copyright 2006 Stephen Margison www.sm-forex.com “ IT’S TIME TO GET MORE OUT OF LIFE” www.sm-forex.com Money Management
- 4. The Forex Codes Money Management (C) Copyright 2006 Stephen Margison www.sm-forex.com
- 6. The Forex Codes Money Management - Drawdown (C) Copyright 2006 Stephen Margison www.sm-forex.com
- 14. (C) Copyright 2006 Stephen Margison www.sm-forex.com “ IT’S TIME TO GET MORE OUT OF LIFE” www.sm-forex.com Money Management
Editor's Notes
- The Forex Codes (C) Copyright Forex Education Ltd 2006 To be on screen during arrival of potential delegate
- The Forex Codes (C) Copyright Forex Education Ltd 2006 One of the most overlooked areas MM keeps us in the game when many novices are knocked out Many people see the trades but don’t manage money well
- The Forex Codes (C) Copyright Forex Education Ltd 2006 By an inch it’s a cinch, by a yard it’s hard! We are not gambling, we are investors We are here for the long term not to hit a jackpot Only risk 3% of your bankroll so that you can survive your losing streaks
- The Forex Codes (C) Copyright Forex Education Ltd 2006 10 trades at 10% of equity only leave a third left after 10 losing trades but with 3% risk 73% equity still left 26% drawdown Vs 65% drawdown
- The Forex Codes (C) Copyright Forex Education Ltd 2006 Let’s say you have a $100,000 and you lose $50,000. What percentage of your account have you lost? The answer is 50%. Simple enough. Now, what percentage of that $50,000 do you have to make in order to get back to your original $100,000? It’s not 50%--you’d have to make back 100% of your $50,000 to get back to your original $100,000. This is called drawdown. For this example, we would’ve had a 50% drawdown.
- The Forex Codes (C) Copyright Forex Education Ltd 2006
- The Forex Codes (C) Copyright Forex Education Ltd 2006 So the novice risks more to “get it back” because due a winner
- The Forex Codes (C) Copyright Forex Education Ltd 2006 If your trade needs a bigger stop you cannot take the trade. Do you have that much discipline? You have to protect your equity whilst gradually building up your pot and compounding. Don’t go for the home run
- The Forex Codes (C) Copyright Forex Education Ltd 2006 Remember the idea is to stay in the game! Vary between 1 and 3% depending upon your confidence in the trade Stake calculator?
- The Forex Codes (C) Copyright Forex Education Ltd 2006 Make sure they get a copy of ecourse 3 in their notes Broker lends you the balance - $99,000
- The Forex Codes (C) Copyright Forex Education Ltd 2006 See excel spreadsheet for compound interest Do examples from ecourse3 One mini lot controls $10,000 of currency, so you are borrowing $10,000 from your broker, secured by your $1,000 account balance. Mathematically, the equation to calculate leverage is: Transaction Value / Account Balance = Leverage Expressed as a ratio: Thus, $10,000 / $1,000 = 10 Or, in your trade, you are leveraged 10:1 What if you wanted to use the whole 100:1 leverage available… Transaction Value / $1,000 = 100 This would make the transaction value equal to $100,000 which of course is one standard lot or 10 mini lots.
- The Forex Codes (C) Copyright Forex Education Ltd 2006 Go through table from ecourse 3. Go through examples 1 and 2 Broker differences. Always check.
- The Forex Codes (C) Copyright Forex Education Ltd 2006 Explain risk to reward. 1:1 lost £300 win £300. 1:2 Lose two lots of £300 and win one £600 etc.
- The Forex Codes (C) Copyright Forex Education Ltd 2006 To be on screen during arrival of potential delegate