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If you’ve never traded before or just getting started and Forex trading you may or may not believe that you can make money by trading in the Forex market.

The truth of the matter is that you can and it may not be nearly as difficult as you think. This is not to say that you can take $100 and make money with no idea what you are doing. You can start with a modest amount of money and grow that amount into something substantial over time.

There are a few basic rules to follow that apply to all trading and to all markets. The first rule is to adjust your expectation levels. Don’t blindly believe the hype that you see advertised just because some guy who says he has made a lot of money in Forex shows you a picture of a large bank balance. We’ve all seen the ads similar to this, “I make six figures a year trading Forex and you can too starting with as little as $100.” It is highly unlikely that you will make six figures yearly from a $100 investment in a short period of time.

Another hard and fast rule that you must grasp in order to make money in Forex trading is that you must control your risk at all times. Risk control allows you to stay in the game and take advantage of the many profitable trading opportunities. One of the most important functions of risk control is to make sure that no series of losing trades will take you out of the game.

You see every trading system will have times when things don’t go as planned. During these periods of time a trader will experience a drop from an equity peak to an equity valley, this is commonly called a drawdown. It should go without saying that if you do not have enough capital in your account that you will not be able to survive these drawdowns.

This is why properly funding your trading account is of paramount importance, although you will see many advertise a ridiculously small amount that you may open a trading account with. I personally consider those small amounts of $100 and $250 to be practice accounts with real money. Also I don’t know of any Forex trading system that could honestly recommend starting with $100.

Using a protective stop loss is one of the more popular methods of risk control. I do hear of people recommending not using stop losses. I personally believe using a stop loss is an absolute must. It simply does not make sense to allow a single trade or a series of unreasonably large losses to wipe out your trading account. Many a trader has blown out an account by hoping the market would move in their direction rather than assessing the worst-case scenario and putting a protective stop loss in place.

The phrase you should always keep in mind is, “If I control my risk, I control my reward”. I know it sounds like common sense but you would be surprised how many traders overlook this simple phrase that can mean the difference between success and failure in Forex trading.

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Ihab Salloum