Lesson 10: Trade and Money Management Strategy

Recap of the prior 4 lessons... Currencies are abbreviated to a 3 letter code and then put into pairs. When viewing a quote ie “EURUSD 1.30025 - 1.30027” the EUR is the 1st currency, the USD is the 2nd currency, the first number is the “bid/sell” price,  the second number is the “ask/buy” price.  The difference between the bid and ask is called the spread. If you bought the EURUSD you would be buying EUR and selling USD. if you sold the EURUSD you would be buying USD and selling EUR. There are 4 FX markets. 1. Spot in which you actually purchase currency, 2&3. Futures and Options in which don’t actually buy the currency but a contract instead.  and 4. Spread Betting where you can trade just like Spot, Futures or Options, but bet instead. Placing a trade... To buy hit the “ask/buy” button on your platform, to sell you hit “bid/sell”. Bet Size means how much do you want to bet per point (a 10 pip move at £2 per point = £20). Stop Loss and Take Profit orders do exactly what they say. Generally you want a RRR of 1:2 or greater, so your TP should be twice the size of your SL. You can move you SL in a trade, this is called a trailing stop (ensure you track loosely to ensure you’re not stopped out early). Managing Money... Divide your capital into 100 even lots, to ensure your maximum loss on any one trade will only be 1% of your account. In each trade our risk is the point difference between our Entry and Stop prices, we call this the “Stop Size”. To ensure that our Stop Size (entry price - stop price) does not exceed our max risk per trade (1% of our capital), we need to divide max risk per trade (1% of our capital) by our Stop Size (Entry - Stop price), this gives us a bet size that will not exceed our max risk per trade.