Forex trading is a tricky business, everyone knows that. First we get attracted to the market by different teasers, spam affiliate mailings, promises that this is it - look no further and that kind of thing. Some people really look no further. They purchase tens or hundreds of Forex indicators and Expert Advisors, subscribe to forex signals and other services without even making an effort to try and understand the real logic behind the Forex market - what forces are driving it and what is logical to expect from it.
Others do better, of course, and start by reading all available internet sources, test what they have learned in practice, read more and test again. They know that probably less than 1% of the information available to the general public is genuine and try to filter this 1% in order to be able to extract the knowledge that is worth having. Sooner or later these people come to the Money Management topic. This is all about what policy to follow in order to determine the lot volume you are to use with your orders.
Generally there are two types of strategies - using fixed lot which means that for each trade you use one and the same amount of money, and lot proportional to your account balance/free margin which means that the lot used is always a certain percentage of your available money - if it grows, so does the lot and vice versa. Both approaches have their pros and cons, that is undeniable. With fixed lot the good thing is that if your account grows with the fixed lot you are effectively reducing the risk to your balance, because the balance is growing and the lot is not - so effectively with every next trade you are using a smaller percentage of your available capital. This is not true when your lot is tied to a fixed percentage of your account balance/free margin - the risk to your capital is always one and the same, so it is crucial that you properly establish your "stop-loss" levels or else sooner or later a loss big enough to take you to a margin call will inevitably come. Yet, I would definitely recommend the second approach, because we are in it for the money, right? If you are good enough at trading, why keep the same fixed lot with every trade of yours?
It all depends on your trading style and appetite of course and the recommended by most Forex pros parameters to use with money management are between 1 and 5% of your available margin on each next trade. Using more than 5% is considered risky for your balance. I would agree if you are using a strategy allowing multiple simultaneous trades, but if you are trading with only one open position at a time, than 5% is definitely limiting your exposure, but also keeping 95% of your capital "dead". You need part of the 95% of course to cover for any periods during an open trade when your position is in the red, but how much? All of it? If yes, than you should not be trading at all - if you have opened a position and kept it open until it was another 90%-95% down, than you should get out of Forex as soon as possible and make better use of your money. If you are not that type of trader who would open such a losing position and keep it open, than you should consider increasing the lot used, otherwise you are keeping most of your balance inactive - so either increase the lot or reduce your capital and make better use of the money.
There are plenty of good examples for nicely programmed Forex Expert Advisors yet one needs to be careful when choosing the right resources and try to always take an informed decision. Good luck with your trading!
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