If you are trading Forex, Commodities or Equities, you often hear the word Money Management. This word is often used in order to determine the position sizing, Stop Loss Management or for risk-reward (which doesn't have anything to do with MM).

What do you need to understand about Money Management? Money Management is not about the size of a position nor about risk-reward, but only the amount of money you are willing to risk for a new position in relationship to your account balance. A very important factor of the Money Management is the Risk-Management which uses the Stop Loss for every position.

Let's make an example:

You account balance is 10'000 USD. You are trading with a Money Management which allows you to risk 1 % of your account for each trade. This means that the Stop Loss, regardless the size of your position, is maximal 100 $. In case of a looser, you will lose not more than 100 $. Why do you trade only with 1 %? You can also change that. It is the decision of a trader. In this case, you can lose theoretically 100 times in a row (the minimum margin of the account is not considered). If you take 2 %, you will be able to lose only 50 times in a row. And if you take 5 % you can lose only 20 times. That sounds very theoretical, and the most traders will say, that they never will lose 20 times in a row. But if you think about Intraday Trading, you need to consider, that it is easily possible to trade more than 100 times a day. A series of losers over different currency pairs can make it happened that you lose more than 20 times in a row. This makes clear that 5 % is a little bit too high.

A technical trader will now say that he doesn't fix his Stop Loss at 100$, but at a certain Support or Resistance Line. This is true. Therefore the trader needs first to decide where to set the stop loss and after that he needs to decide about the position sizing. In order to make an accurate position sizing it is recommended to use a broker who provides trading on Mini Lots. For example you can use FXCM.