Before developing trading skill, a Forex trader must master money management. How are we supposed to grow our capital if we don’t learn to protect it first?
Capital is the main ingredient, or lifeblood, of a trade. As such, it has the potential to grow and provide more strength to your trading; however, you must also respect that it’s performance depends on the decisions and money management of the trader. Many beginning traders find the minimum required capital for retail brokers is $25 and from there think it'll be easy to grow. Now, we've all heard of the idea of letting your money work for you...but you’ve got to give your money a little bit more to work with! Ask yourself questions to find out how you should start to configure your capital. Such as:
-What lot size would be appropriate to trade with this capital?
-How am I going to manage risk during my trade?
-Will my trading plan and capital allow me to reach my trading goals?
If you want to protect your capital, you can’t ignore the deeper things such as money management when trading--trading is a business and not a slot machine. If you gamble, you will lose.
About Money Management
Money management is the process of overseeing (saving, spending, investing, etc) the cash usage of an individual or group. When managing your account funds, you should treat it as you would a business or like you would in your everyday life: tracking expenses, managing bills, and knowing how much we need to work to cover our living costs are essential skills everybody needs to know. Now apply this to trading; everyday, we analyze our sizing, risk parameters, entry points, stop losses/take profits, and know how much we need to trade to reach our trading goals.
If money management is so crucial to being a successful trader, then why do so many traders neglect it? Well, sometimes money management can be uncomfortable and inconvenient. It forces the trader to put more work into confirming a trade, and occasionally forces a trader to admit they were wrong and take a loss. It’s like the, “going to the gym,” of the trading world. Everybody knows it is the key to becoming stronger, but it takes effort and occasionally causes us to sweat.
Money Management with the Apiary Fund
You can see why teaching effective money management is very important to the Apiary Fund. Both our success and the success of our traders depends on each bee's ability to properly manage the fund. The Apiary Fund emphasizes consistency above scoring big profits. This is because, by nature, big profits are attached with big risk. You can’t avoid that. The Apiary Fund has a, “safety net,” for money management--traders are not allowed to risk more than 2% of their account in one trade, or 5% of their account overall. Once a trader hits the safety net, the trade will automatically close, forcing the loss. This is in effect to protect our capital, because the Apiary Fund plans on sticking around so we can continue to teach new traders the ins and outs of money management in Forex!