Don’t Use 2% Money Management Rule. Never. Because Forex Is Highly Leveraged, Much More So Than Stock Trading

The 2% money management (MM) rule likely started in stock trading and longer-term investing many years ago. It is based on the idea that you would be in multiple positions at any one time and that you’d only risk 2% of your net equity on any one of those positions.

For example, you might have 100k in your account and 20 active stock trades at 2% risk each. The 2% rule really started as a way for investors to spread their risk capital amongst a diversified spectrum of stocks and investments, but it was never intended to be used the way that many Forex traders use it these days …

Forex should be thought of as a margin account, because that is essentially what it is. In other words, you really only need to keep enough money in your trading account to cover the margin of the position sizes you normally trade. You don’t need to keep ALL your trading / risk capital in your trading account, any professional trader will tell you this. Since we are only in at most, a few positions at a time that we can use high leverage on, and we are only holding for typically a few days to one or two week maximum, we do not need to diversify our risk across many different markets, in other words, diversification in Forex is irrelevant.

Remember, money management is no good without a high-probability trading method. Implementing a solid price action trading method with a sound MM plan is the key of the situation, and it is the quickest path to trading success.