In a business in order to make profit one must learn how to manage risks. To make profits in trading you need to learn about the various money management strategies. When it comes to trading, the risks to be managed are potential losses. Using money management rules will not only protect your Forex account but also make you profitable in the long run.

There is a big difference between risking 2% of your equity compared to risking 10% of your equity on a single transaction. If you happened to go through a losing streak and lost only 20 trades in a row, you would have gone from starting balance of $50,000 to having only $6,750 left if you risked 10% on each transaction. You would have lost over 87.5% of your equity. However, if you risked only 2% you would have still had $34,055 which is only a 32% loss of your total equity.

This is why it’s best to use the 2% risk management strategy. The difference between risking 2% and 10% is that if you risked 2% you would still have $34,055 after 20 losing trades. However, if you risked 10% you would only have $32,805 after only 5 losing trades that is less than what you would have if you risked only 2% of your account and lost all 20 trades. The point is that you want to setup your rules so that when you do have a loss-making period, you will still have enough capital to trade next time.