If you’re already trading successfully in Olymp Trade, then chances are, money and risk management isn’t a BIG secret to you anymore. You practice it daily.
But What Really is Risk Management?
Risk management is a set of rules that determine trade amounts and limit the trader’s total trade volume.
In a layman’s language, risk management is how you avoid losing money while continuing to trade in anticipation of making profits.
It is how you train yourself to stop trading when burning more money isn’t making sense. And it is definitely how you program yourself not to spend 100% of your account balance on a single trade.
In Olymp Trade you can use tried and tested risk and money management strategies to save your original deposit regardless of your trade outcome.
This is done basically through either of these three basic money management methods: –
- The fixed amount trading.
- The Martingale money management strategy.
- And the parlay method.
In this post, we discuss each of these strategies putting emphasis on fixed amount trading and the martingale money management strategy.
I hope you become a better money manager after reading.
1. Fixed Amount Trading.
This is by far the money management strategy used by most traders; beginning, intermediate and experienced.
It basically involves using a smaller percentage of your account balance to trade online – usually between 0.5 and 6% of your account balance.
This ensures that even if a prediction is incorrect, you still have a reasonable account balance to continue trading.
For beginning traders, spending between 0.5 and 1% of the original deposit is advised.
On the other hand, experienced traders can stake between 2 and 6% of the account balance at a go.
Note: – If you forgo these money management rules for greed and trade say – 10% or 20% of your account balance at a go; if you lose it will be very difficult to recover.
2. Martingale Risk and Money Management strategy.
This strategy is preferred when you are actively trading and losing.
Martingale rides on the principle that if you lose a trade; and double your stake on the next trade, you will recover your account in the long run. And immediately you recover, you should go back to your original trade amount.
For example, if you are trading with $10 per trade; if you lose you should open another. This time with $20.
Winning the second, third, or fourth trade ensures that you not only recover all your money but that you also make profits in the process.
Note: – Martingale consists of 4 – 7 steps.
Unlike martingale money management which requires that you double your trading amount each time you lose; parley requires that you increase your trade amount after every successful trade.
Meaning, if you trade with $1 on an asset that guarantees 80% profits; if you win and your returns are $1.8 you should stake $1.8 on the next trade.
This helps you build your account balance very fast by reinvesting your profits.