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Nial Fuller

NIAL FULLER
Professional Trader, Author & Trading Coach

Nial Fuller’s 5 Golden Rules of Forex Trading Money Management

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By in Forex Trading Articles by Nial Fuller Last updated on | 30 Comments

treeUnderstanding how to implement Forex trading money management to grow your trading account is essential to the success of all traders. However, many beginning traders are largely unaware of some or most of the basic concepts of effective Forex money management, and this is a major reason why so many traders fail to make money over the long-term in the markets.

This article will cover five topics that every trader should be keenly aware of in order to grow their trading account as efficiently as possible. For more information on each of the five topics discussed below, check out the links contained within each topic. You should use this article as a starting point to understand Forex trading money management, and refer back to as needed to solidify your comprehension of each topic discussed.

How much should I risk on a trade?

I get a lot of emails from traders asking me how much they should risk per trade, or what percentage of their trading account they should risk per trade. Unfortunately, there is really no “concrete” answer to this question because there are a lot of variables that are different from one trader to the next. A good place to start when trying to determine how much to risk per trade is to honestly answering this question: how much money do you have as disposable income that you can realistically afford to lose?

I find that many beginning traders fund their trading accounts with money they really shouldn’t be risking in the markets, and if they don’t initially make this mistake, they make later down the road after blowing out their first account. So, first off, you should never risk any money in the markets that is not truly disposable, and by truly disposable I mean “fun money”, money you don’t need for any other purpose besides entertainment. I am not implying trading is entertainment, I am just trying to convey the point that you should only trade with money you truly do not need. Doing this will start you on an “even” emotional playing field, because you will have no emotional attachment to your trading money.

Next, when determining how much you should risk on a trade, always think in terms of dollars risked, not in pips. The notion that a trader should think in terms of pips instead of dollars is simply not conducive to effective Forex trading money management. Pips are basically irrelevant because one trader could risk the same amount of pips as another trader but they could have drastically different dollar amounts at risk, this is a result of position sizing and will be discussed below.

In my own personal approach I take a more discretionary approach to how much I will risk on any given trade, this is contrary to what the popular Forex web presence might say. I typically risk a set amount of dollars per trade, rather than a set risk percentage, this approach works for me because I have mastered my trading edge, which is price action, and so I know exactly what I am looking for in the markets. Also, because I trade with purely disposable income, I have no problem risking a set dollar amount on a price action trading setup that I feel 100% confident in. For more on this approach please click on the link in the previous paragraph.

Risk reward

Risk reward should be thought of as the “workhorse” of money management, the proper implementation of risk reward is how professional traders make money. Indeed, it is so powerful that you can even enter the market essentially randomly and not lose money over the long run, and perhaps even turn a small profit, through the proper execution of risk reward. For more on this idea see this article: A Case Study of Random Entry and Risk Reward in Forex Trading.

Unfortunately many traders take the wrong approach to risk reward by worrying first about the potential reward and last about the potential risk. You need to first calculate the risk involved on any potential trade setup AFTER you determine the most logical place to put your stop loss. Once you have done this, you then can determine what the potential reward is based on multiples of your dollar amount risked. So, if you risked $100 on a trade, you ideally want to aim for a reward of at least $200 or more; the R:R would be 1:2. The idea is that if you can make at least 2 times your risk on all your winning trades, you will, over a series of trades, offset your losers to the point of turning a decent profit. Obtaining a R:R of 1:2 or better even gives you the potential to lose on the majority of your trades and still make money. For more on the topic of risk reward see this article: Risk Reward: the Holy Grail of Forex Trading.

Position sizing

Many traders do not understand position sizing, but it is a very simple concept that you must understand if you want to effectively manage your money. Position sizing allows you to risk the same amount of money no matter what price action trading strategy you trade or how large or small your stop loss distance is. Some traders erroneously believe that by having a wider stop loss on a trade they are risking more money or that by having a smaller stop loss on a trade they are risking less money.

The truth of the matter is that you can adjust your position size up or down to meet the necessary stop loss distance. So, you first should determine the most logical place to put your stop on a trade setup, you never want to determine your position size first, this should always come AFTER you determine the best and safest place for your stop. After figuring out where to place your stop loss, you THEN calculate the number of lots you can trade to maintain your pre-determined risk amount. This is the correct way to maintain your risk on any trade; it is a basic but essential component to an effective Forex money management plan. For more on position sizing check out this article: Risk Reward & Position Sizing in Forex Trading.

How effective money management helps you manage your emotions

I often discuss the importance of managing your emotions while trading the Forex market. This is a very important factor of successful trading, but it is something that depends heavily on correct Forex trading money management. Put simply, if you don’t logically manage your money and risk on every single trade, it will be nearly impossible for you to manage your emotions effectively. There is a reinforcing loop between money management and emotion management, and it can go either way. For example, the better you manage your risk and money in the Forex market, the easier it becomes to manage your emotions, simply because if you are effectively managing your money you are unlikely to become emotional.

Conversely, if you do not take risk and money management seriously you are opening a can of “emotional” worms that will be very hard to contain. The temptations of over-trading and over-leveraging your trading account are very difficult to contain if you aren’t trading with truly disposable income or aren’t comfortable with the amount you are risking per trade. So, you see, you need to build your Forex trading money management plan on a solid foundation, and this starts with the concepts discussed previously of disposable income, risk / reward, and position sizing.

Master your Forex trading strategy

Finally, in order to truly exploit all of the above topics, you need to truly master your Forex trading strategy. As I discussed earlier under the “how much should I risk on a trade?” topic, the main reason that I am comfortable using a somewhat discretionary approach to risk amount is because I am 100% confident in my knowledge and awareness of my edge in the market; price action.

Experienced traders like myself know that trading less often than most amateurs is conducive to growing their trading account. Put simply, there is no reason to trade if there is no reason to trade. All of the above money management principals are best taken advantage of when you are confident in your trading strategy and have no doubts in your mind about what the market should look like before you risk your money in it. Essentially, domination of your chosen Forex trading strategy will tie all of the pieces of money management together and make them work in your favor. If you want to know more about how I trade the Forex market with simple price action trading strategies, check out my Price Action Forex trading course.

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About Nial Fuller

is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. In 2016, Nial won the Million Dollar Trader Competition. Checkout Nial's Professional Trading Course here.
  1. Fanani September 17, 2019 at 12:12 pm

    Thank a lot Nial.

    Reply
  2. Dmitriy September 16, 2019 at 1:57 pm

    Thanks a lot, Nial!
    That was a truly beautiful lesson!

    Reply
  3. Sunday September 14, 2019 at 9:53 pm

    what to know more about risk management
    if I want to risk 1$ on a pair what will be my lot size and pip value to set as a Stop loss

    Reply
  4. Zinnur June 2, 2019 at 4:34 am

    Important lesson. Thanks

    Reply
  5. Благодарность October 30, 2018 at 3:47 am

    Magnificent article

    Reply
  6. Rahmat February 26, 2018 at 7:36 pm

    Almost every articles content and language from Nial are really giving positive effects including this one.
    So thank you Nial.

    Reply
  7. Olawa February 18, 2018 at 1:01 am

    Nial is my preferred Forex mentor anyday

    Reply
  8. DERRICK February 16, 2018 at 12:54 am

    all i can say is thank you so much

    Reply
  9. Tha Mathabzo Zulu February 15, 2018 at 8:15 pm

    Thank Nial

    Reply
  10. Duncan February 15, 2018 at 6:29 pm

    Thanks Nial;

    This was a great post which actually helped me rephrase my thoughts after my losses.

    I am still not very profitable at this stage but every time I lose, I look back to see what I could have done better and learn to minimize my losses maybe exit at a small profit rather than a loss!!

    However; after having read this, I also now appreciate the fact that losses are a part of it as well and I feel less discouraged before taking the next trade than before. Things sometimes are easier said than done – true – but after reading these guidelines, I learn a lot and appreciate it heaps. I am learning a lot and the best part of it is that I am enjoying it.

    Thanks for spending the time to post such valuable guidance!

    Duncan

    Reply
  11. Peter Miller February 15, 2018 at 2:46 pm

    Another good lesson. As they say ” life is what you make it “and that goes for trading also, think before you act and know that never one day (or life is ) is the same as the last one, so treat as Nial says each trade as a new beginning. Thanks .

    Reply
  12. rudra February 15, 2018 at 6:24 am

    good one sir

    Reply
  13. Khesiwe February 15, 2018 at 2:14 am

    Excellent article pactice makes perfect I’m going to practice every advice in this article thanks Nial

    Reply
  14. Winston Roy Longbottom February 15, 2018 at 12:01 am

    Thanks Nial, I for one admit that I was influenced by previous success and could not see the next trade through that; I was brought back to reality with some quick losses, however I puuled my thoughts together and looked at my next trade with confidence and considered every possible angle before taking it and I am now back on track. This article has since reassured me of that fact and I must disregard any previous trade before attempting the next. Your articles help keep sanity in the trading game and also leads to further success. Many Thanks. Winston

    Reply
  15. farzad February 14, 2018 at 8:50 pm

    Every word in this article is like gold…

    Thanks AGAIN Nial.

    Reply
  16. Olamide February 14, 2018 at 2:03 am

    Thanks Nial. That’s reminds me of a trade some years ago before I quit trading. I bought EUR/USD on $0.05 lots with $20 risk and i made a profit of $183 on that trade so that winning recency bias got into my head and I felt overconfident, then i went ahead to trade $0.10 lots on my next two trades and I lost both. That’s how I gave back the profit I made from that EUR/USD to the market. Fear start to catch me then I reduce my lots to $0.01 which definitely reduced my profit that I would have make on some trade. Though I just came back to the market since two or three years ago that I quit but am still using demo account to test my trading strategies before trying to come back live. Thanks once more.

    Reply
  17. Wandera Moses February 13, 2018 at 8:50 pm

    Nial thx for this one also. i have improved alot in trading just by reading your articles. thx alot

    Reply
  18. ampurirag February 13, 2018 at 6:09 pm

    Excellent and timely. Thanks Nial.

    Reply
  19. Seiso February 13, 2018 at 1:44 pm

    Typical of Nial’s mail’s. I am not in anyway surprised to find this post hitting the nail on the head as it does and so timely as well. I always find Nial’s post as informing, factual and educating like this one. Thanks to Nial, from now I am no longer going to be enslaved to my last trade’s results.

    Reply
  20. Colin February 13, 2018 at 10:31 am

    Thanks for the trading insight. Particularly about training our brains to behave properly.

    Reply
  21. Hettie van der Vyver February 13, 2018 at 5:12 am

    this makes sense!!

    Reply
  22. Thoko February 13, 2018 at 5:09 am

    Well I am a true novice,I have not started trading yet. If I understand well briefly you say if one is a trader one must bury the past.That is my motto
    So I feel l Iam going to do well.

    Reply
  23. Wasantha February 13, 2018 at 4:45 am

    This article explains what happened when I first started trading forex. After reading many of Nial,s writings on the subject of trading I feel that I am expanded in my knowledge and confident about my trading decisions.I really appreciate Nial,s works,

    Reply
  24. kris February 13, 2018 at 2:59 am

    i noticed today after one loosing trade that it can’t reflect, the other running trades .
    After that i checked my emails and i saw your email as first .I have read it and then it was like you would heard what i sayd before It was simmilar to :

    If you just lost, it has no bearing on the fact that your next trade might be a winner.
    If you just won, it has no bearing on the fact that your next trade might be a loser.

    thank you for your work .
    traders mindset ..

    have a nice day.

    Reply

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