One beginner takes a course in driving before he ever gets within the vehicle. He probably makes it to the next town too, maybe after some wrong turns, maybe with a couple scratches on the paintwork, maybe a little late, but he arrives in the final analysis. But the other newb jumps straight in the auto with no teaching, heads for the 1st road that he sees and ends up either in the wrong city or even more likely, in the ditch. So what will we need from a foreign exchange trading tutorial and other currency exchange courses? Just like with the drivers, understanding how to operate the system is only a tiny part of our coaching. Risk administration is what’s most likely to stop us from finishing up in the ditch. We’ll take an example. Say you have a system that makes a median of fifty pips profit on winning trades and 30 pips loss on losing trades, including the spread. It’s obvious this is a good system. It should make profits in the long term. But if you start out thinking you have got a 50% likelihood of success so you can risk 50% of your funds on each trade, you would be making a gigantic mistake. Fifty percent winners does not necessarily mean that every loss will be followed by a win and vice versa. There might be two, 3, four, perhaps on occasion even ten losses in a row. Or you might have five losses followed by a win followed by another five losses.
A better risk in this particular situation would be five pc or maybe two percent. At 10% the trader would probably still be wiped out at some point. You can check this out against back tests, but always double the worst situation that you see because it is nearly definitely not the worst that might happen.
Money management is something that has to be learned by any beginner trader.