Best Forex Money Management
and Risk Control Methods

Best Forex Money Management and Risk Control Methods -

The majority of forex retail traders don't even have a money management or risk control strategy, so those who do are already a step-ahead of everyone else.

If you want to ensure you are consistently profitable in the forex market, then having a strategy to manage risk is absolutely necessary.

These 5 forex money management and risk control methods are the best of the best, based on several studies of thousands of consistently profitable forex retail traders.

Related: Stocks vs Forex: Why Trade Forex?

1. Manage Money in Forex by Thinking In Terms of Losses

One of the biggest mistakes unprofitable forex traders make is thinking in terms of potential gains instead of thinking about potential losses. They get money in their eyes and chase massive gains only to experience massive losses.

Basing your decisions on your potential losses is an absolute MUST for anyone to be successful long-term at forex trading. Otherwise, you are just gambling. If you refuse to think in terms of losses, then you would probably have more fun at a casino, and lose your money more slowly, than in forex.

For example, with a $2,000 account you may be excited to potentially gain $500 from a single trade, but are you willing to lose -$500? Are you willing to lose -25% of your account value on ONE trade?

So think in terms of what you can afford to lose per trade.

2. Control Risk in Forex by Limiting Loss Exposure

The majority of consistently profitable forex traders have a simple rule for controlling risk: Limit loss exposure to 2%.

While risk seeking traders (the majority of forex retail traders) may not like the idea of only risking 2% of their money on a single trade, since it also means they limit their profit, they fail to realize the unsustainability of risking 10% or more on one trade.

You cannot expect to be profitable long-term if you risk 10% or more of your account on one trade, because it would only take a few bad trades in a row to blow up your account.

Even if it doesn't happen for a few years, it is bound to happen eventually. Someone might get lucky and grow their account to $1 million, only to lose over half their money on a series of bad trades.

That kind of risk-taking is not sustainable. The only way to win consistently is to reduce risk to a sustainable level so that a few really bad trades won't destroy you.

3. Control Risk in Forex by Using Low Leverage

Controlling risk by using low leverage goes together with only risking a maximum of 2% of your margin on a trade.

In business, a company is typically considered to be OVER-leveraged when using 1.3x leverage (not 13x, but 1.3x – not even 2x), yet forex retail traders have access to at least 50x leverage!

You should never use anything close to 50x leverage.

All consistently profitable forex traders use low-leverage, typically less than 10x leverage. Many profitable traders even refuse to use more than 5x leverage.


Because leverage is a double-edge sword that both accelerates your gains and escalates your losses. As mentioned, you may get excited by a $500 gain from a $2,000 account, but can you handle a -$500 loss?

Potentially losing -25% of your account value on ONE trade is not sustainable long-term. It is guaranteed you will blow up your account eventually using that level of leverage.

Consider your loss potential using 50x leverage:

  • -10 pips reduces your account by 5%
  • -20 pips reduces your account by 10%
  • -50 pips reduces your account by 25%
  • -100 pips reduces your account by 50%

What happens if the market JUMPS -100 pips against you?

Slippage is a real risk in the forex market, where your stop-loss will be triggered several pips further than what you wanted. Sometimes the forex market makes large jumps in an instant. If you had put your stop-loss at -50 pips, but the market jumps -100 pips against you, then you have lost HALF of your account in an instant using 50x leverage.

Imagine if you had $100,000 and lost -$50,000 on one bad trade?

4. Manage Money and Control Risk in Forex by Avoiding Anxiety

Pay attention to your anxiety. If you have anxiety, then you are trading wrong.

Anxiety is a sign that you are risking too much. No one should have anxiety risking only 1-2% of their margin on a trade. If you are following the 2% rule, then you should only be risking $40 with a $2,000 account.

Obviously, losing $40 probably won't cause most people anxiety. However, if you are risking 10% and the potential of losing -$200 causes you anxiety then you are risking too much.

Anxiety not only alerts you to the fact that you are taking on too much risk, but it also will cause people to not follow their strategy. They panic and make poor decisions that go against their strategy because they are risking too much money and have anxiety.

Everyone always talks about how emotions get in the way of trading, and that controlling your emotions is important for being profitable, but in reality the issue is not emotions. The issue is that you are taking on too much risk, which is why you are emotional in the first place.

Long-term consistently profitable traders do not suffer from anxiety from trading, because they control risk.

5. Manage Money in Forex by Keeping a Trading Journal

Whether it be pen and paper, or an Excel spreadsheet, everyone should record the details of their trades, including: Date Enter/Exit, Time Enter/Exit, Forex Pair, Price Enter/Exit, Loss/Gain, and take notes for why you entered or exited the trade.

Examining your historical trades is absolutely essential to noticing (and fixing) mistakes you keep making, as well as examining your overall performance. If you trade without keeping track of your trades, especially for the first few years, then you are bound to keep repeating the same mistakes over and over again.

In one study, over almost 85% of consistently profitable forex traders kept a trading journal.

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