It can be argued that proper money management is the keystone to successful trading in the Forex market. With that being said, the purpose of this article is to provide you with some general principles on how to practice good money management in your Forex trading.

Just how important is money management? I strongly believe that it is possible to have two experienced traders each take the exact opposite side of a series of trades, and each of them come out ahead over time. The way this is possible is by each of them exercising the skill of proper money management. If you have a trading system that has a demonstrated historical accuracy rate of 55% or better, but you practice poor money management, you can still blow out your account. On the other hand, if you use a mediocre trading system that has only a 45% accuracy rate, but you practice the right kind of money management, you can still come out ahead. That's how important money management is to your success as a trader.

The first principle of proper money management is that you must have your money management rules precisely defined as a system. It will not do to decide the size of your trading position by the seat of your pants. A good pilot may be able to fly that way, but even a good trader will die that way.

The second principle of proper money management is that you must never risk more than a very miniscule percentage of your available trading capital on any given trade. The exact percentage will vary from trader to trader, but in general, even the most highly skilled traders will not even consider risking more than 1% to 2% of their capital on any given trade. Even 3% is considered to be way too high most of the time.

The next principle of money management is to have your risk/reward ratio clearly defined for each trade. That means that you know how much you are risking to lose in relationship to how much you hope to gain on each trade.If you understand your risk/reward ratio, then you are able to approach your trading scientifically and in a way that is mathematically sound.

If you want to get into more specifics that go beyond those general principles, there are some very good money management systems that are available. I recently came across one that borders on absolute genius, in my opinion. It is called the Binary Equation System, and is based on the work of an 18th century mathematician. It is not a trading strategy as much as it is a strategy for money management that is designed especially for Forex trading. You can read more about this particular strategy at http://www.tradewhileyousleep.biz.

No matter which system of money management that you settle on, the most important thing is that you have a sound set of rules for your position size that you follow without question. If you are willing to do that, then you can indeed be successful as a Forex trader.