In case you risk too much, you are going to lose a large percentage of your trading account. Now, you will risk more and try to recover the lost amount and in the end you will lose all your account. There is another form of failure that you should beware of. You were able to grow your account 20% every year. Apparently, you may look like a successful investor. But, if you had a good money management plan with you, you could have made 40% or even more in a year. So what do you say was it your success or failure?
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A margin call is an order when your dealer automatically takes you out of the trade once you have lost $9,000 and only $1000 is remaining. Once you get the margin call, it means you are out of the trade. How could you lose $9,000 in a single trade?
Each pip on a EUR/USD contract will cost $10. So you need to lose 900 pips (900*10=9000) in order to lose $9,000. Many would say what about the stop loss. You are right! You don’t need to risk your whole account on a single trade and trade without a stop loss. You can use stop losses to protect your position in case the trade goes wrong. You could put a stop loss at 100 pips losing $1000 only. You could put a 50 pips stop loss losing only $500.
Those rules are:
1) Live to trade another day, 2) Knowing how much to risk and 3) Knowing how to determine the trade size.
