We conveyed to you a very important topic about managing capital with a good explanation and smooth god willing it will be useful
The world of trading is an investment area and needs to deal with money management rules in accordance with the rules applicable in the world of investment. The idea of capital management is to establish controls to determine the size of the funds to be entered into the market while calculating the risk volume allowed in each individual transaction.

Making profit in forex trading is only part of the trading process but the hardest part of it is how to deal correctly with financial losses and work to make them and exit from trades with the least possible losses, when your losses are limited this makes the duration of your presence in the market long even if you move The market is against your advantage, there are many ways to minimize losses but one of the best is to set the maximum loss.

What is maximum loss or maximum loss?

Is the maximum amount of money that can be borne lost during the trading process, which means that no matter how much the losses, your maximum loss of your balance makes you comfortable and you can control your emotions and think well without psychological pressure, as most traders lose their money because they have not They develop a good trading strategy and leave their accounts vulnerable to successive losses without specifying the amount of losses that can be sustained.

Example:

If your trading account is about $1000 and you decide to trade at $100 you are expected to lose three times in a row and therefore you will lose your portfolio to $400, which may make you enter again to trade $200 believing that this time may be an opportunity to achieve profit after the For the most consecutive losses.

Another example: If the account size is $1000 and the risk ratio is 5%, then the amount of money at risk of loss is as follows:

Size of funds at risk = ((specified ratio ≤ 100) x account size)
The size of the money at risk = (5 ≤ 100) x $1000 = $50.
What happens if the trader decides to complete the trade without setting a maximum loss limit?

If the trader decides to continue trading at $100 in the following position through the previous example in the belief that it is an opportunity to win, if he loses his money will drop to 250 dollars, and therefore the opportunity to make a profit is almost non-existent because he has to win about 150% of his capital this in addition To the loss of capital, in return, setting a maximum loss avoids being exposed to such a situation.

Stop loss order and how to determine the size of contracts

You must first specify the number of stop loss points and then determine the size of contracts or trades based on the percentage of funds at risk as follows:

Number of contracts = amount of funds at risk ♫ (number of stop-loss order points vs. point value)
Number of contracts = $200 ♫ (50 pips x $10 pip value) = 0.4 contracts or lots
What is the main cause of failure and successive losses?

The main reason for many traders leaving the market is poor capital management and non-compliance with the fundamentals and rules of trading, which leads to continued risk of a large amount of money, draining the trader. Smart risk management keeps the trader going in the long term and keeping his money.

Factors that increase profit and reduce losses

One of the most important reasons to increase your profits and reduce your losses is to set a minimum loss, as well as to open a large number of trades while adhering to the basic rules of capital management.

Finally, the trader must always determine the risk ratio to be at least 1:2 as it is customary as a main rule. When opening a compliance trading account, a forex trader must strictrules and regulations for capital management and not to turn to quick gain or a deal outside the capital management system, no matter what the market temptations. Even in the event of a consecutive loss of trades but on a seasonal or annual scale you will be able to calculate the efficiency of the capital management plan.