Let’s look at the last Forex trade I sent out to Forex Trader
On the 7th of January 2016, I told my Forex Traders to go long GBP/AUD.
Here are the specifics for the trade.
Take profit: 2.0860
Stop loss: 2.0770
Margin per trade: 120
On the 8th of January 2016, I told them to close their GBP/AUD as it hit their take profit. This banked them a 50% gain in just a day.
But the question was, how much money did a trader put into their trade.
To calculate this we need to use a general rule. My general rule is that I’m never willing to risk more than 2% of my portfolio per trade.
So if you have a R30,000 portfolio, then you should never risk more than R600 (R30,000 X 2%).
Now we know our limits, let’s calculate how much to put into your Forex trade.
Calculate how much to put into your Forex trade using spread trading
Spread trading is a very easy concept to understand. (Probably the easiest when trading Forex).
All you’re doing is putting a value on how much money you’re willing to risk per Forex pip movement.
So if you set the risk to R1 risk per pip, every pip movement the GBP/AUD goes for or against your trade, you’ll lose one rand.
Before you give up and run away, let me show you using our GBP/AUD example.
The entry level was 2.0800 and the stop loss was at 2.0770. This means in this trade, you were willing to risk 30 pips (2.0800 – 2.0770).
And so if you set the rands risked per pip to R1. This means you would’ve risked R30 in your trade.
But you know that with a R30,000 portfolio you were willing to risk R600 for the Forex trade.
And so this leads us to the final step to calculate how much you’re willing to put into your trade.
Step #2: Know what the rands risked per pip for your Forex trade
If you know you’re willing to risk R600 in your Forex trade and the trade had a 30 pip risk, then all you do is divide the two numbers to get the rands risked per pip.
R600 ÷ 30 pips=R20.
This means you’ll set your rands risked per pip value to R20 for this specific trade.
And what is the margin on this?
Well as soon as you put in your trading levels and the rands risked per pip, your trading platform will tell you exactly what your initial margin will be.
Each trading platform has their own calculations and so you can find the amount there in miliseconds.
You’re ready for something spectacular
If you know how much you’re willing to put into each Forex trade, then you’re almost ready to start banking a second income in the markets.
On the 20th of February, I’ll be hosting the first Forex 101 seminar
for 2016 and it will answer all of your questions to be a Forex trader.
And if it doesn’t answer every question, I’ve also sneaked in my favourite Forex book valued at R597 for Free for you to make sure you have all the essentials.
But I need to tell you now that these tickets sell like hot cakes. So I’d recommend you get your name down today to avoid any disappointments.
Click here for the details…
"Wisdom yields wealth"
Senior Editor: Trading Tips
Head Analyst: Red Hot Storm Trader
Author: 94 Top Trading Lessons of All Time