Money Management Guide
Prepared by: Scott P. Nourse, President
Introduction
Money management or risk management is arguably the most important aspect of trading in any
financial market. While some companies try to over-simplify effective money management, FX Renew
has taken the time to put together this comprehensive guide that covers money management from a
number of different angles. We discuss per trade risk, total risk exposure, consistency of risk, trade
frequency, trade longevity and more. There truly are a number of factors that help shape our risk
management and each trade is unique. We suggest reading through this guide and referencing it as
needed. Attached to this guide you will find our Excel spreadsheets, which will help you in practicing
sound money management. This guide may not be the most exciting read of your life, but if you plan on
being a real trader it may be one of the most important.
Ground Rules
Perhaps the biggest mistake Forex traders make in risk management is treating every trade the same.
This may be trading a set number of lots on every trade, positioning their stop loss a certain number of
pips away on every trade or any number of arbitrary actions. As we noted in the introduction, each
trade is unique and must be treated as such. If we arbitrarily trade with 5 lots on each trade, a trade
with a 75 pip stop loss will risk three times that of a trade with a 25 pip stop. You cannot expect
consistency if you trade this way. Risk must be determined by you and calculated prior to entering any
trade, no exceptions. Traders often become emotional about trades because they are unaware of their
total risk and fear the unknown. We aim to alleviate this anxiety by giving you the knowledge to trade
like a professional with the goal of long-term profitability. Please note that stop loss and profit targets
are determined by fundamental and technical analysis not covered in this money management guide.
Risk and Reward
The Forex market is one that offers incredible leverage. Leverage is a double-edged sword; it can work
for you and against you. I know from experience that new traders are much more likely to suffer from
over-leveraging than under-leveraging. If I were to buy one standard lot on EUR/USD and close the
trade 50 pips higher, I ve made $500. Many new traders who experience such a trade will say  If I had
bought 5 lots I d be up $2500! What they often fail to recognize is that they would also be risking five
times as much if the trade moved against them. The idea is to risk less than the anticipated reward. So
a reward:risk ratio of 2:1 or 3:1 is good. If we are risking $200 on a trade, we must have a reasonable
expectation that it will return more than $200. In this manner, we can make money on only 50% of our
trades and still be profitable. With great reward:risk ratios, we can be wrong even more often and still
come out ahead.
1
Please be aware that off-exchange foreign currency transactions carry a high degree of risk and are not suitable for
many investors. If you have any doubts about your suitability, please consult an independent financial advisor. FX
Renew, LLC and any members or associates  We have prepared this document for informational purposes only.
We make no representation that following these guidelines will result in profit or not result in loss. We will not be
held liable for any losses that may result directly or indirectly as a result of relying on this information.
You Determine Your Risk
It's your account, your money and you should be fully in charge of it. Before you get into a trade, you
must first decide how much of your account balance you wish to risk on a trade. Let's say your balance
is $10,000. Are you comfortable taking a loss of $300 (3%) if the trade does not work out? Would you
feel better about only risking $100 (1%)? This is called risk tolerance and every trader s tolerance is
different. Nobody wants to lose money, but the reality is that losing trades are part of trading. So, you
must ask yourself "How much do I feel comfortable risking on a given trade?" This may be a range, i.e.
$100 to $200, depending on several factors including how strongly you feel about a trade. When market
conditions are not ideal, we generally risk a smaller percentage of our account balance on any given
trade than we otherwise would. We are rarely out of the market entirely for extended periods because
we don t know when conditions will improve until they already have. Instead, we scale back risk and
trade frequency when volatility is high and/or chart patterns are random and non-trending.
Total Risk Exposure
In the above section, we discussed the risk we may take on individual trades as a percentage of the
account balance. Your risk tolerance should also take into consideration how many open positions you
tend to carry at any given time. For example, some traders are very focused on a few currency pairs and
will only hold one or two trades at a time. Other traders may commonly hold five or more positions at a
time. If you risk 2% of your account on each trade, you stand to lose 10% of your account if all five
trades move against you. This is your total risk exposure; the sum of all risk on individual trades held
simultaneously. Clearly, those traders who hold fewer positions can risk more on each individual trade.
As a professional money manager, I would never have such a large percentage of client assets at risk at
one time. In the above scenario, a few bad days or weeks could wipe you out. Because we are dealing
in larger sums of money, our risk on individual trades is normally much lower than 1% and total risk
exposure is quite low too.
You may be saying to yourself  Wait a minute; I m only trading with $3,000 so 1% is only $30.  I can t
get anywhere risking only $30 on each trade. Here s what I ve been telling traders like you for years:
Do the best you can with your situation. If you are in this boat, perhaps you can focus on shorter-term
opportunities that allow you to trade one mini lot with a stop loss in the neighborhood of 30 pips. Or
you may choose to trade infrequently, say once or twice a week, and risk just a little bit more on each
trade. Again, manage your risk the best you possibly can with the account balance you have. Having a
$3,000 account is no excuse for risking 10% of it on every trade. You may hear about traders who took a
$500 account to $50,000 in a year. For every one of those stories there are a thousand you don t hear
about with a less happy ending. Take it from someone who has worked directly with thousands of new
Forex traders over the last 10 years. I want to see you succeed.
2
Please be aware that off-exchange foreign currency transactions carry a high degree of risk and are not suitable for
many investors. If you have any doubts about your suitability, please consult an independent financial advisor. FX
Renew, LLC and any members or associates  We have prepared this document for informational purposes only.
We make no representation that following these guidelines will result in profit or not result in loss. We will not be
held liable for any losses that may result directly or indirectly as a result of relying on this information.
Frequency of Trading
I began to touch on how frequently you will be trading in the last section. This too is an important
aspect of money management. For example, if you are a trader who seeks one great trade a week and
looks for swing trade set-ups that you ll hold for a few days or more, you have more flexibility with risk
than a day trader who is clearing 10 trades a day. In your case, if you risk 2% on each trade then your
total risk exposure is normally only 2% and you may stand to lose 8% in a month if all four trades go
against you. Let s now look at the day trader. This trader is in and out of 10 trades a day, averaging 50
per week. Using an extreme example, if he risks 2% on each trade and all his trades one week go against
him, he s done. So, if you plan to trade very frequently and hold trades for only minutes or hours, make
sure your risk exposure on each trade is very low. You have to always consider the worst case scenario
and calculate how much of your account balance you could lose on a given day or in a single week if all
of your trades go against you.
Consistency in Risk
We believe it is also important to be consistent in the amount of risk you take on your trades. You don t
want to just  bet the farm once in a while because you re feeling lucky. Instead, we try to take what
we know about our trade frequency, risk tolerance and reward:risk ratios and use that information to be
consistent in how much we risk. For example, we may see that in an average month, we place 6
intraday trades (day trades), 3 swing trades and one long-term trade. On each day trade, because they
are more frequent and short-lived, we may risk only 0.50% (1/2 of one percent). On the swing trades,
which normally run a few days and are less frequent, we may risk 1% of our account balance on each.
Finally, on the long-term trade may we may risk 1.5%. Worst case scenario, if every trade went against
us, we would stand to lose 7.5% of our account. The breakdown is as follows:
6 day trades @ 0.50% each: 6 x 0.5 = 3%
3 swing trades @ 1% each: 3 x 1 = 3%
1 long-term trade @ 1.5% = 1.5%
In a brighter scenario, assuming we use a reward:risk ratio of 2:1, let s look at a positive breakdown:
6 day trades each @ 0.5% risk, 1.0% reward (2:1 reward:risk). 3 winners, 3 losers; we gain 1.5% net.
3 swing trades each @ 1% risk, 2% reward. 2 winners, 1 loser; we gain 3% net.
1 long-term trade @ 1.5% risk, 3% reward. 1 winner, 0 losers; we gain 3% net.
In this case, we made money on 6 of 10 trades (60%) and made a 7.5% gain in our account.
3
Please be aware that off-exchange foreign currency transactions carry a high degree of risk and are not suitable for
many investors. If you have any doubts about your suitability, please consult an independent financial advisor. FX
Renew, LLC and any members or associates  We have prepared this document for informational purposes only.
We make no representation that following these guidelines will result in profit or not result in loss. We will not be
held liable for any losses that may result directly or indirectly as a result of relying on this information.
Excel Spreadsheet Templates
The attached Microsoft Excel spreadsheets were created to help you determine how much to risk on
each trade and how big your trade should be based on your personal risk tolerance. The math behind it
is really quite simple and it takes only a few moments to plug your numbers in before each trade.
Eventually, you may not need the form and simply calculate everything in your head. The spreadsheet
does not account for floating pip values and assumes a value of $1 for mini lot pips and $10 for standard
account pips. Please remember to adjust your position sizes accordingly if the pip value is not fixed.
Please make sure you select the correct file depending on whether you trade a mini or standard
account. Feel free to save these files and use them at your leisure. If you cannot see the attachments in
this Adobe PDF, click on  View then  Navigation Panels then  Attachments. Again, I invite you to
save the files to your computer for future use.
Sincerely,
Scott P. Nourse
President, FX Renew
4
Please be aware that off-exchange foreign currency transactions carry a high degree of risk and are not suitable for
many investors. If you have any doubts about your suitability, please consult an independent financial advisor. FX
Renew, LLC and any members or associates  We have prepared this document for informational purposes only.
We make no representation that following these guidelines will result in profit or not result in loss. We will not be
held liable for any losses that may result directly or indirectly as a result of relying on this information.