# Chapter 33, Part I. Risk Management Framework. Page 5

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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1. ### Sive Morten Special Consultant to the FPA

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Commander in Pips: You need a bit more money to start. Let’s calculate the absolute minimum as a start-up sum on forex to trade. We will give the simplest approach to calculation. Later, you may find and apply some more sophisticated approach – there are a lot of books dedicated to risk management.

So, our rule is to not risk more, than 1 % from initial total assets in every trade. Hence we will be able to make 100 losing trades in a row. Our maximum loss, according to minimum daily volatility is 280 pips. If the minimum lot that we can trade is 0.01. Hence our minimum assets are: (100,000*0.01*280pips)/1% = 2800 USD. But this is a minimum volatility. Maximum volatility, at least during recent couple of years is 4 times higher. Hence our assets should be at average (2800+11,200)/2 ~ 7000 USD. That is a normal start-up sum. If you intend to trade with, say, 0.1 lot, you will need \$70K. Intraday charts have smaller volatility, so if you want to trade intraday you may need smaller assets to start with. So, this is some material to think about.

Pipruit: I see. Sounds logical, but sir, I’ve heard that there are brokers that allow you to choose any lot size. So, if I choose 0.001 lot, probably I can trade with just 25 bucks.

Commander in Pips: Probably you do. But now imagine how much you will earn, if the market will show a 100 pip move in your favor – 100,000*0.001*0.0100 = 1\$. Probably this is a true prize for your hard work on the market. Maybe it’s better to make bet for some 90% Manchester United win over a weak team with the smallest ratio, say, 1.1 – you’ll get about 2.5\$ profit. Think about it. You have to feel the results of your hard work, otherwise, you will lose any interest in the trading process.