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Trading is all about risk and money management. First learn how to manage your risk and only then think about profits. Many new traders make the mistake of ignoring money management in the beginning but when they get their fingers burnt, they realize the importance of a good money management system. You don’t need to risk all your money on a single trade that you may or may not win. This is permissible in gambling but not in trading. In trading, you learn to survive by placing only a small percentage of your money at risk that is appropriate with the volatility level in the market on a single trade. Get the Ultimate Swing Trading Software FREE and learn this 10 minutes a day swing trading strategy that works for stocks,forex, futures, options and ETFs. Discover a revolutionary new forex robot that uses a new technology RCTPA and made 2,270.30% in 2009 averaging about 101% ROI each month. If you can read an email, you print cash with these 1500 pips a day Strignano’s Forex Signals from heaven. One new member made ,000 in just 24 hours with these signals.

Calculating position size under the different money management systems is a tricky stuff. You just need to understand the concept. Trading software packages often include money management calculators with them. Let’s discuss some of the different money management style. There are more but these are some of the most commonly used by traders.

Now before we do that, you need to understand this fact that different markets may require a different money managment system. It is due to the different levels of volatility in these markets. For example, in stock trading, you may need a different money management system as compare to in forex trading or futures trading.

The most basic is the Fixed Fractional Money Management System. This system assumes that you want to limit your risk to a set proportion of your trading account mostly between 2% to 10%. Within that range, you would trade a larger percentage of your money for a less riskier trade and a smaller percentage of your money for a less risky trade. This money management style or what you call system is widely used by traders. Most trade by risking not more than 2% of the trading account. The Fixed Ratio Money Management System is commonly used for trading options and futures. It has a formula that you can master if you are an options trader or a futures trader.

Now, a money management system that had its origins in gambling but is used by many traders is the Martingale Money Management System. Many traders love to use this system when they start losing. There are many trading systems that use the martingale strategy to recover from a loss. There are a number of forex robots or what you call expert advisors that use this strategy to recover loss. What is this strategy then? Suppose you are trading with two thousand dollars. If you make a winning trade, good enough, you again trade with two thousand dollars. But suppose you lose. In this case, you double your amount to four thousand dollars. Suppose, you win, you will recover the loss on the first trade. But suppose, you lose again. So, you double this amount again to eight thousand dollars. You keep on doubling until you hit a winner. Pretty risky, huh! But still there are many traders who use this money management strategy in their trading system. In theory, as long as you have an infinite amount of money with you, you will always come out ahead. But the problem is most us have only a limited amount of money and we may run out of our money soon before we have a winning trade. A better approach on making a losing trade is to pause and think what went wrong and if you make two losing trades in a row, simply stop trading. Go back to the drawing board and rethink your trading strategy. Practice for sometime on your demo account and again start trading.