Money Management in FOREX Trading

Presented by: Sajid Khan Ghori

 DISCLAIMER

This program being provided for educational purpose only, it

should NOT be taken as an investment advice by any means.
Online trading & investing business is lucrative as well as risky, so
any trading or investment decision should be made after
consultation with certified & regulated Investment Advisors, by
carefully considering your financial situation. Opportunities shown
has benefits of hindsight, without the problems of (lack of liquidity,
unprecedented geopolitical & economic events) so, the past
performance is not guarantee of future results.
Learning Outcomes

What is money management and how does it

work

Understanding the power of compound

interest & exponential growth

How to calculate the appropriate lot size per

trade, according to your equity/balance
How much money we should invest in
trading?
• Prime Capital
• This is the amount you need to maintain your daily life e.g.
House rent, food, clothing, utility bills, educational expenses,
medical expenses & traveling expenses etc.
• Risk Capital
• This is the extra amount/saving which (if lost) will not be affect
our daily life maintenance. Loans/Liabilities doesn’t count
towards risk capital.
• Why should I invest when there is no certainty in trading?
• There is nothing certain in this world, not even life or this earth itself. Sooner
or later everything comes to an end which could be today or tomorrow, so
everything is on RISK. To spend this life successfully we need to manage
these risks. Managing risk doesn’t mean avoiding them, it actually means to
be ready to face those risks so when they come to us we are able to reduce
the impact of potential damage carried by this risks. So risk management is
the KEY for a successful life.
• Trading is not different than life, it carries risks too which could wipe out all of
your invested capital if you don’t manage these risks or don’t know how to
manage them.
• An estimated 90% of traders lose money in Forex, so is it good
or bad?
• Forex is a zero sum game, money is just exchanging the hands, not
being generated. So the more people lose money the more chances
there are of earning.
• Why 90% of traders lose money?
• Most losers don’t know about Trading Psychology & Money
Management.
• The one who knows about it, doesn’t know the importance of it.
• The one who knows the importance, fails to implement it.

Jesse Livermore was a legendary trader who was a pioneer in volume

studies in early 20th Century. Many people know this BUT what they don’t
know is that he was bankrupted twice in his trading career. Despite all his
skills, he showed no respect to risk management
Game of Probabilities
• Magical Systems (trading gurus are scared with my 100% profitable
system), Secret Code Cracked, NO Loss Strategy & Super
Indicators …. All these are just lies & scam
• There is no method, strategy, tool or indicator ever been invented which can
give you 100% accuracy …. Imagine if it happens … you can get in $99? ….
1 million dollar? ………. No it will be priceless …. AND more important
markets will stop functioning, as sooner or later every one will have that
magical system, when no one will lose, how can anyone earn???
• How to make money when you don’t have any 100% success
system
• When you don’t have 100% chances of winning in a game, it becomes Game
of Probabilities. The more probabilities you accumulate, the more chances
you will have of winning.
• Secondly, you don’t invest all of, or most of, your capital when you don’t have
100% chances of winning. You have to take the recommended minimum &
calculated risk and let the probabilities work for you.
Compound Interest & Exponential Growth
Compound interest is the most powerful force in the universe.
Albert Einstein
• Lets take a real life example
• A person borrowed Rs. 50,000/= for 6 months with fixed 20% interest.
He agreed to pay back Rs. 60,000/= after 6 months. The lender placed
another condition that if the borrower gets late in paying back the loan
amount, he only needs to pay 1 paisa (Rs. 0.01) as penalty for first day,
which will doubled next day, if it gets to third day, the second day penalty
amount will be doubled & so on. There no interest will be charged for
these extra days.
• What do you think how much the borrower needs to pay back if he is
late around 40 days? …. Think of a maximum figure.
 Lot Sizing
• This is a standard practice to take only 1% or less risk per trade in the
world of professional trading.

Formula:
Account Size x 0.01 = Risk per / SL in pips = Pip Value
(Equity) trade

$10,000 x 0.01 = $100 / 50 = $2

• Lets see what would be the scenario in case of continuous winning or losing on
$10,000 account.
Losing Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 9,900

2 9,900 99 9,801
3 9,801 98.01 9,703
4 9,703 97.0299 9,606
5 9,606 96.059601 9,510
Losing Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 9,900

2 9,900 99 9,801
3 9,801 98.01 9,703
4 9,703 97.0299 9,606
5 9,606 96.059601 9,510
50 6,111 61.11172395 6,050
Losing Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 9,900

2 9,900 99 9,801
3 9,801 98.01 9,703
4 9,703 97.0299 9,606
5 9,606 96.059601 9,510
50 6,111 61.11172395 6,050
100 3,697 36.97296376 3,660
Losing Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 9,900

2 9,900 99 9,801
3 9,801 98.01 9,703
4 9,703 97.0299 9,606
5 9,606 96.059601 9,510
50 6,111 61.11172395 6,050
100 3,697 36.97296376 3,660
200 1,353 13.53330049 1,340
Losing Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 9,900

2 9,900 99 9,801
3 9,801 98.01 9,703
4 9,703 97.0299 9,606
5 9,606 96.059601 9,510
50 6,111 61.11172395 6,050
100 3,697 36.97296376 3,660
200 1,353 13.53330049 1,340
500 66 0.663685156 66
Winning Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 10,100

2 10,100 101 10,201
3 10,201 102.01 10,303
4 10,303 103.0301 10,406
5 10,406 104.060401 10,510
Winning Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 10,100

2 10,100 101 10,201
3 10,201 102.01 10,303
4 10,303 103.0301 10,406
5 10,406 104.060401 10,510
50 16,283 162.8348338 16,446
Winning Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 10,100

2 10,100 101 10,201
3 10,201 102.01 10,303
4 10,303 103.0301 10,406
5 10,406 104.060401 10,510
50 16,283 162.8348338 16,446
100 26,780 267.8033494 27,048
Winning Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 10,100

2 10,100 101 10,201
3 10,201 102.01 10,303
4 10,303 103.0301 10,406
5 10,406 104.060401 10,510
50 16,283 162.8348338 16,446
100 26,780 267.8033494 27,048
200 72,436 724.3582032 73,160
Winning Scenario
No of Trades Total Balance 1% of Total Balance Equity

1 10,000 100 10,100

2 10,100 101 10,201
3 10,201 102.01 10,303
4 10,303 103.0301 10,406
5 10,406 104.060401 10,510
50 16,283 162.8348338 16,446
100 26,780 267.8033494 27,048
200 72,436 724.3582032 73,160
500 1,433,394 14333.93786 1,447,728
How to create a successful online trading system
which gives consistent results?
A successful online trading system consist on (Trading Edge,
Confluence of Probabilities & Strict Money Management)

 Trading Edge
 Trading edge is any method or technique which gives you
advantage over other market players so the trader has a higher
chance of winning over his/her competitors in the market.

 Confluence of Probabilities
 It’s a point or an area where 2 or more probabilities are
accumulated to create a directional bias/opportunity which has
a higher degree of success

 Strict Money Management

 Using =< 1% risk per trade rule
 Using =< 5% over all risk on running trades
 Should you have any question,
please contact on the information given below: