Money Management and leverage, stop losses and targets

This is one of the most important and most overlooked parts of trading. Many traders take huge risks with their capital in the hope that they will “get rich quickly” or recover previous losses with one good trade. We would like to suggest some simple guidelines for managing your trading account with our G7 system, which will help you to reduce risk and maximize returns. There is lots of additional information on money management on The Traders Club website, in the video library and other sections of the site.

1. Never leverage more than 5:1

· This means that for every dollar in your account, you should not trade more than 5 dollars per trade positions. For example, if your account size is $5000, you should trade no more than $25000 per position. This is 2.5 mini lots (a mini lot is worth $10,000)

· We prefer to leverage even lower than 5:1 with 1:1 – 2:1 being optimal.

2. Never risk more than 2% of your account on 1 trade.

· This is easily calculated. If the trade you want to enter requires a 40 pip stop loss for example, the risk to your account if stopped out is 40 pips x leverage/100%. In this case, if your leverage is 5:1

then the risk would be 40x5/100 = 2%. If the stop loss is higher, the leverage would have to be reduced.

3. Always aim for a 2:1 reward/risk ratio in your trades.

· If you are prepared to risk say 40 pips on a trade, ensure that the potential target for the trade is at least 80 pips. If you are prepared to risk 50 pips, make sure you have a possible target of 100 pips, and so on. Try to always aim for twice as much as you risk. If you stick to these simple rules, you should be able to weather the storms and have a long lasting and relatively stress free Forex career!

What is Forex

The Foreign Exchange market, also referred to as the "FOREX" or "Forex" or "Retail forex" or "FX" or "Spot FX" or just "Spot" is the largest financial market in the world, with a volume of over $4 trillion a day. If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you can easily see how enormous the Foreign Exchange really is. It actually equates to more than three times the total amount of the stocks and futures markets combined! Forex rocks!

• What is traded on the Foreign Exchange market?

The simple answer is money. Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the euro and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).

Because you're not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.

In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies.  Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is considered an Over‐the‐Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24‐hour period.  Until the late 1990's, only the "big guys" could play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucks to start with! Forex was originally intended to be used by bankers and large institutions ‐ and not by us "little guys".  However, because of the rise of the Internet, online Forex trading firms are now able to offer trading accounts to 'retail' traders like us.