Top 6 Things To Remember When Trading Bigger Forex Positions

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It is no secret that if you can beat the forex markets your dreams can come true. What do you hope for? A luxurious mansion with an Olympic size pool? How about cruising around in your dream car? Trading the forex markets can be a lucrative adventure if you have the required expertise. If you are really skilled at trading you can almost effortlessly cream off some serious dough by trading multiple lot sizes. But hold on just one minute. Before you dive right into it here are a few things you must know.

How good are you at trading a Demo account?

To gauge how good you will be at trading a big position it is advisable to practice first with a demo account. Do you regularly make winning trades on your demo account, only to give the profits right back to the market? If you answered yes, then you should learn to be profitable on a demo account before risking real capital, not to mention huge amounts of it.

Start Trading with Real Money, but with a small lot size.

So now that you’ve mastered demo trading I know it’s hard to resist the adrenaline rush to strike trading riches. However it is better to start trading with a mini lot where a one pip gain gives you one dollar. This is important because should the market go against you then you would only lose one dollar per pip.

 

Increase Your Position Size Gradually

When you are comfortably making profits then you may increase your position size but only slowly. Avoid the “get rich quick” temptation. If you are too greedy then it is only a matter of time before indiscipline will lead your account balance downhill.

Equity Management is Key

Basically equity management is all about how much of your account you are risking in a single trade. Consider this: You start trading with a $10,000 account. Remembering that you are trading to make some serious money, on your very first trade you risk 25%. If the trade goes against you, you would have lost $2500, so your account balance is now $7500. Should the same thing happen on your next trade you would have lost 25% of $7500 so now your trading account balance is only $5625. Can you see where this is going? In only 2 trades you have wiped out almost half of your account. Most trading professionals recommend that you risk no more than 2% on any single trade. That way, should the market go against you, your trading account simply lives much much longer.

Always Use a Stop Loss

When trading a large position size it is a good feeling when you land a winning trade. However the lager the returns, the greater the risk. A stop loss gets you out of a trade if it becomes a loser. Without a stop loss your account may be wiped out real soon because from time to time there will be trades which go against your plan.

 

Too Many Open Trades

This is important more so for large position sizes. If you have too many open trades it becomes harder to keep track of what is happening and before you know it the trades begin to control you rather than the reverse. In trading, many things can happen in a short time and you do not want to be a helpless bystander when you have placed a lot of money on the line.

So to sum it all up a larger forex position requires the trader to be knowledgeable about the market; to have a disciplined trading approach with proper equity management; and to have a means of protecting the trading capital. What good is trading without a trading account?

Written by Ferl Ngningone


Ferl is a former Financial Analyst at BNP Paribas and a well-seasoned globe trotter. Besides trading online he enjoys traveling more than anything.