Forex Money Management for Forex Sailing

Posted May 14th, 2010 by Rapid Forex 22 Comments »

You’ve learned the basic rules of trading with Forex Sailing, so how do you manage your trades with proper money management?

In a previous post, I discussed the basic forex money management principles to live by. The principles are extremely simple, but it can be tempting to “bend the rules” because you want to make more money fast!

Have Self Control & Become a Discplined Forex Trader

I hate the word discipline. It sounds like a bunch of hard work (and it is). In order to be successful with online forex trading, we need proper forex money management.

So the next time you consider breaking these rules “just once,” or “one this higher-probability trade,” look in the mirror and rededicate yourself to following the habits of a forex winner.

Practical Forex Money Management

The core money management rule is:

NEVER risk more than 2-5% of your forex trading account on any ONE trade!

In case you weren’t paying attention, this means two things:

NEVER, EVER, EVER risk more than 5% of your online forex trading account on a SINGLE trade!
It’s a “good idea” to risk less than 5%, a safer plan is 2% (even though 5% is ok)

Measuring Your Forex Trading Risk on a Trade

So how do you know how much money you’re risking on a single trade?

It’s actually pretty easy.

On a normal forex trading account, 1 pip = $1 USD. This is a common value for most online forex brokers.

Since I’m trying to make online forex trading accessible to as many people as possible, I’ll be using an account where 1 pip = $0.10 USD. Since a pip is only 10 cents, you’ll be able to do trades with 1/10th of the money you’d normally require.

Your Stop is Your Risk

The total amount of money you risk in a trade is how many pips below your entry price that you place your stop order.

In a recent forex sailing example, I shared a trade with a total risk of 131 pips. When following the rules for forex sailing, the stop had to be placed 131 pips below the entry price.

Since 1 pip = $0.10 in this type of trading account, the total risk = 131 * $0.10 = $13.10.

Since $13.10 is at risk, we need to make sure that we’re not risking more than 5% to satisfy our forex money management plan.

Multiply By 20 for Proper Forex Money Management

If you multiply the total risk in a trade by twenty (20), you’ll be following the 5% rule.

To properly do a trade that requires a risk of $13.10, we need to have an online forex trading account balance of $13.10 * 20 = $262.

Before entering any trade, you’ll need to do this quick calculation. You can also do the calculation in reverse.

Calculating Maximum Risk Per Trade for You Forex Trading Account

Another way to determine if you can do a trade is to look at your online forex trading account balance.

If you have $500, you can risk up to 5% per trade, so you can risk $500 * 5% = $25 = 250 pips (@$0.10/pip).

If you have $750, you can risk up to 5% per trade, so you can risk $750 * 5% = $37.50 = 375 pips (@$0.10/pip).

The 10-cent-HALF Rule of Instant Forex Money Management

It turns out that you can do proper forex money management with a simple glance of your forex trading account balance.

If you’re using a forex trading account where 1 pip = $0.10, then you can risk HALF the amount of pips as dollars in your account.

If you have $1,000, you do a trade that requires a 500 pip stop (500 is HALF of 1,000)
If you have $300, you do a trade that requires a 150 pip stop (150 is HALF of 300)
If you have $120, you do a trade that requires a 60 pip stop (60 is HALF of 120)
If you have $50, you do a trade that requires a 25 pip stop (25 is HALF of 50)
Get the idea?

Of course this works for accounts in US dollars using a leverage where 1 pip = $0.10. If you’re trading in a regular forex trading account where 1 pip = $1, then the HALF rule needs to be divided by 10 after taking HALF. If you’r trading with a different amount of leverage, you’ll need to adjust this rule accordingly.

Dynamic Forex Money Management

Every trade you do will change your forex account balance. It’s important to look at the HALF rule EVERY TIME YOU TRADE. This will allow you to dynamically change your trade size as your account grows.

Also, if you realize that you can risk 500 pips in a trade and the trade only requires a 200 pip stop, you will want to double your position size so you risk 400 pips. This helps your forex trading account to grow more rapidly, while still following the rules of forex money management.

Where to Get a 10-Cent-Pip Forex Trading Account

I’m recommending you sign up for an eToro forex trading account for the free 90 day forex trading bootcamp. I’m recommending that you fund your eToro forex account with at least $250, so you will be able to follow money management and do most of the trades that we’ll be spotting.

Since the 90 day FREE online forex trading bootcamp is FREE, take the money that you’d normally spend on a forex trading course and put it into your eToro forex account. You can get a practice eToro account here. I suggest funding it with $250 as soon as possible so you’ll be ready for the bootcamp.

Why eToro?

eToro is probably the fastest growing online forex broker. There’s also a cool secret way for you to make money with eToro that other brokers aren’t offering. When we start the 90 day bootcamp, I’ll show you how to add some more money to your eToro account (you’ll love how easy this is).

I have been using eToro for about 2 months and I’m a fan. I’ve used other brokers, but right now I like eToro for people starting out with online forex trading.

We’ll be using some other free tools outside eToro for the bootcamp, but since you’ll be trading with real money you should start setting up your eToro account.

Tags: 90 day forex bootcamp, eToro, forex money management, forex sailing, practice forex account Posted in Forex Sailing, Money Management

22 Responses to “Forex Money Management for Forex Sailing”

regit Says:
May 14th, 2010 at 9:28 pm
I’l be insterested in hearing about how to make extra money with an eToro account that other brokers don’t offer.

I happened across CMS Forex ( http://www.cmsforex.com ). I wanted to evaluate the trading platform VT Trader, so signed up for a demo. I was surprised to get a popup window with a promo to open a live micro account. But this is a promo that I’ve never seen: they put $50 into your account, no strings attached! If you want to withdraw the $50, there are conditions, such as deposit $500 within 45 days. I spoke with an account rep to find out if the $50 are available for trading, even if I don’t deposit any more money and don’t want to withdraw the $50. The answer: yes, the money stays in the account and is fully avaialbe for trading. Of course, in the final analysis, they don’t really give you money. When you execute trades, they make money from the spread. So after you execute a few trades, they recoup their $50. And if you continue and are a happy trader (maybe using some of the techniques Brian gives away here on Rapid Forex) growing your account, CMS is a happy broker because you are making trades and they get their share of the spread.

Of course $50 is not enough to use Forex Sailing because you would break the 5% risk money management guideline. However, I suspect that Brian has a Forex Scalping method available that targets single digit pips with very small stops that can work with a tiny account balance.

As with any broker, read all of the material on their site so you can get an idea of what spreads they offer and what they can offer that is better than competitors. (I happen to like their stated commitment of striving to fill orders at the price you enter with minimum slippage and never executing an order on a requote if it falls outside of limits that you set.)

[Reply]
Kulvadee Says:
May 15th, 2010 at 11:57 pm
I am ready for the bootcamp.:)

[Reply]
Kyle Says:
May 16th, 2010 at 8:55 am
Hi Brian,
There is one big problem with E-toro, and that is you cannot plot Fibonacci numbers on their charts. I joined up a couple weeks ago and found this out and chatted on-line and asked about Fibonacci. So how are you trading with E-toro without Fibonacci?

[Reply]
Rapid Forex Reply:
May 16th, 2010 at 8:59 am
@Kyle – you don’t need to, I’ve provided a tool that does it for you: click here to download the fibonacci calculator.

[Reply]
Ranko Says:
May 16th, 2010 at 5:01 pm
eToro platform looks very interesting. Need some tutorial about all futures (already send email and will talk tomorrow).

[Reply]
Kyle Says:
May 17th, 2010 at 5:26 am
Hey Regit
I also opened a demo account with CMS Forex and have been using their platform VT Trader. I have been pretty impressed!! They offer heaps of currency pairs, Fibonacci and tons of other indicators to use. They have pattern indicators to give a heads up on a forming pattern like a head and shoulders etc. Low floating spreads, educational videos, micro account, easy to understand statments. I’m looking forward to the bootcamp using VT Trader.

[Reply]
Ariel Says:
May 17th, 2010 at 6:21 am
I already have a mini-account at InterbankFx.
Will it be good or do I have to open an eToro account anyway??
I can’t wait for the bootcamp to begin…

[Reply]
Rapid Forex Reply:
May 17th, 2010 at 6:23 am
@Ariel – you can use whatever account that you like. I’ll be using eToro for my examples, so it’ll just require you to translate that into your broker’s mechanics.

[Reply]
deborah Says:
May 18th, 2010 at 9:22 am
Hello,

I really want to join the bootcamp however i work and was wondering what time will you start trading.

[Reply]
Rapid Forex Reply:
May 18th, 2010 at 9:23 am
@Deborah – it won’t matter what time I’m trading. All of the lessons/examples will be at your own pace. I’ll be talking about the market each day, but you won’t have to be there for it to happen live.

[Reply]
Chiedu Eze Says:
May 18th, 2010 at 11:35 am
Thanks for the explanation on money management. You really simplified it in a way that beginners like me will understand.
You recommended e-toro for us , but I’ll like to know if you’ve used Marketiva, and if so do you advise us to use it as well.
Thanks.

[Reply]
Rapid Forex Reply:
May 18th, 2010 at 11:36 am
@Chiedu – I haven’t used Marketiva. I think it’s a good idea to use eToro as I’ll be using it for the 90 day bootcamp. Since the bootcamp is free, you can use your own money for trading instead of on a trading course! It’ll make things easier to use the platform that I’ll be using for examples if you don’t want to have to think as hard

[Reply]
Import Worker Says:
May 19th, 2010 at 11:43 am
As with any broker, read all of the material on their site so you can get an idea of what spreads they offer and what they can offer that is better than competitors. (I happen to like their stated commitment of striving to fill orders at the price you enter with minimum slippage and never executing an order on a requote if it falls outside of limits that you set.)
+1

[Reply]
Anthony Says:
June 8th, 2010 at 1:51 pm
How do you adjust the money management for different currency pairs? Each one is different. I have been using my brokers (GallantFX) pip tool calculator to get the $ risk per lot size, then bouncing that of my 2-3% I can risk. Is there a quick easy way to calculate a 2% risk instead of 5% @.10?

[Reply]
Rapid Forex Reply:
June 9th, 2010 at 10:21 am
@Anthony – sure, if you want 2% risk instead of 5%, just multiply the risk by 0.40. For instance, if you do my 5% trick and determine you can risk 1,000 pips, 40% of that is 400 pips. So 400 pips would be 2% risk (0.40 * 1000 = 400 = 2% risk).

[Reply]
Samson Says:
June 27th, 2010 at 4:57 am
Hi Brain,
How’s the weekend. Just like I said I took the weekend offto re-read all your post all over again. I was reading this post on money management for forex sailing and I want to relate my recent experience. I decided to open a 1000 USD account with etoro to allow me to be able to do most of the forex sailing trade u’ll be posting on the boot camp. I deposited the amount and after my first trade of 4000units, I realised that Etoro had reset the minimum no of lot I can trade with to 10 000 units. I just took out a pip value calculator and realised that at 10 000 unit 1 pip will equal 1 dollar and I definately will not be able to do any meaningful trade with you. I contacted my account manager via e-mail to tell him to reduce the minimum no of lot I can trade with to at least 2000unit I was used to in the demo account, and this was what he replied:-

…”This is for demo traders and not for real traders – Forex brokers are trading on mini lots and not micro lots – as the pip value will otherwise only be worth $ 0,.1

And obviously there is nothing to be gained by this – if you’re looking to trade cheaply I advise sticking to the demo for the meantime until otherwise confident

I will get your first deposit bonus today

Regards”…

What am I to do now?

[Reply]
Rapid Forex Reply:
June 30th, 2010 at 8:59 am
@Samson – they change it when the market is volatile. I just looked and they’re allowing 1,000 units on all pairs for a price of $0.10/pip. I didn’t realize this was something that changed during market conditions. I’m definitely looking at new brokers…

[Reply]
Anthony Reply:
June 30th, 2010 at 1:57 pm
I use “Gallant FX” “http://www.gallantfx.com/”. I use the Metatrader 4 platform. It is the easiest platform to use I have ever seen. They never change how much you can trade like you were saying. I have no problem trading mini and micro with a $4000 account. I am trading from .1 to .3 lots per my current account size. I was trading .0X lots with this account initially. The min for a micro is only $500 no max. Hope that helps. I have had no problems with them and the service is good. You also get a free VPS server so your computer can blow up and you can access your trade from somewhere else. I recently had to buy a new computer and accessed my account from the local library.

[Reply]
Rapid Forex Reply:
July 9th, 2010 at 6:04 pm
@Anthony- this is helpful. Thanks for sharing this with us

[Reply]
Batavier Says:
November 14th, 2010 at 6:53 pm
Cool training material so far. I’m blessed with only have real time access to trade during the Asian session only. Is this OK for Forex Sailing, Surfing and Swimming?

[Reply]
Rapid Forex Reply:
November 15th, 2010 at 11:04 am
@Batavier – Forex Sailing, Surfing & Swimming works just as well during those timeframes! I’m in Hawaii, so those timeframes are most convenient for me as well

[Reply]
Forex Funds Management For Forex Sailing » Bubbs digest Says:
January 1st, 2012 at 2:23 am
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