Forex Money Management: The 2% Rule

Believe me when I say that over 70% of forex traders these days don’t really have money management strategies as part of their trading plan. Most people don’t realize how important forex money management is; it should be an essential part of every trading strategies and it will help you substantially manage risks and profits.

I used to be one of those traders with no money management strategy I mentioned earlier. I juggle around with profits and risks without knowing how I can properly manage them to my advantages. Moving from 30+ pips profit to -40 pips loss in a matter of hours is just too common for me. I finally stop and actually think about proper money management when I start to feel that forex trading is too much of an emotional rollercoaster; well, it shouldn’t!

That was when I discovered the 2% rule, a very simple forex money management strategy that can help every trader maintain a solid risk and profit management for their trades. The only key point of this rule is to never risk more than 2% of your initial capital. If you start with $1,000, you should only risk $20 on a single trade and nothing more.

This simple rule actually has a lot of benefits. If you limit your risks to 2%, the amount of emotional strain of forex trading can be reduced substantially. You can also quickly recover from a bad trade because the amount you lose is just 2% of your initial capital.