An Overview Of Forex Trading For Beginners
Forex trading is a whole new world for a beginner who is just making its way into this lucrative industry. If you are one of them, get hands-on with its basics and have a clear understanding of its tools, structure, etc. Usually, the two main question arises in the mind of a newbie trader. These are what account size should I need? How much money can I make?
Forex trading for beginners is not a simple task. Also, various misconceptions and misunderstandings of trading occur. Let’s clear them one by one.
First of all, it’s important for you to understand that you never risk your full account size. There is always a catastrophic stop to define the ruin before you start trading. And, once your account goes below the loss amount, you are considered ruined, but you will risk only the money you decided.
Well, now let’s find out what account size is needed for maximum profits. It depends on two factors – margin required by the exchanges and the expected drawdown. The margin is the security deposit required for safe trading. It differs on the basis of the trading contract. Even some brokers offer a 50% deposit on this margin amount, but only if you day trade and different is required for overnight trading.
Now, the next factor that affects the account size is expected drawdown. It’s important to know how much your account will shrink. Like if you deposit an amount in your trading account and it moves against you and your account value falls below the margin, then you’ll get a margin call. Also, some electronic platforms don’t let you trade anymore by liquidating your open position. Thus, it’s necessary to know the maximum drawdown of the past for a successful trading.
For a safe trading, double the maximum drawdown
Find out how much you will lose after assuming that the system is robust and you will get similar results as in the past. Thus, for calculating the risk of ruin, use the log-normal distribution curve. Well, no need for these complex calculations as drawdown calculator helps you to know how much your account will shrink and that too within a few seconds. This calculator tells how much your account will lose after “x” number of losing trades, after using a fixed percentage of risk per trade. Just input your account start balance, risk percent per trade, i.e. % loss and how many results you want to see. This is too simple. Moreover, know the probability of losing.
Now, let’s come to the next question – how much money can I make?
You can do it by calculating the average profit per trade. Divide the overall profit by the amount of trades you made to find how much you will make. Also, if you can catch a lucky streak you can make even more. So, how likely you are going to make money in the next trades can be known through streak probability.
Well, the streak probability calculator is all you need. It helps you to find out the chances of losing a streak happening over a given number of trades. Just put in the number of trades you expect length of the streak, loss probability and calculate the chances of occurrence.
Thus, trading is all about risk and reward. If your probability of making is more than the probability of losing, then it’s a good ratio. Moreover, know how much you can make by using the performance report of the past trading results.
Hence, with statistical functions you can determine your loss and probability. Thus, be vigilant and trade with full confidence, just like currency trading experts do.