Every trading strategy is a set of rules that tells you what instrument you should trade, when to enter and to exit the position and how to manage your money. You have probably learned that good money management is a very important part of successful trading. You can have a great trading system with a very high win rate but if your money management is poor you will not trade successfully. So, how it is if I use an automated trading system, should I care about money management or the robot is doing that job for me?
When you decide to trade using forex robots, the first thing you should do is to back-test it. Back-testing can be performed in MetaTrader Strategy Tester. It will not only tell you if you can trade profitably with your EA but also it will help you to get familiar with it and learn all its important characteristics. You will see what money management rules are implemented.
When you see what trading strategy type the fx robot is using. You should check if it is using martingale or grid-based strategy, these strategies are characterized by many opened positions at the same time, you should avoid using them especially if you do not the trading on the account with larger money resources. It is important to check if the expert is putting the stop loss, when it is closing the trade or if it is hedging the trades (keeping buy and sell position opened at the same time). A stop-loss function is protecting your account from greater losses if the trade was not successful. Also, a greater loss can be protected by closing the position or by opening a hedging position. If any of these money protecting mechanisms are not implemented be careful with these EA because one trade may cause a very high loss.
Many expert advisors have a built-in money management function. You enter the risk percent that equals the how much percentage of your account you are willing to lose in a single trade. Depending on the win rate and your risk preference the risk percent should be between 0.5% and 2%. Alternatively, risk can be expressed as your account base currency amount that you are willing to lose per trade. Well, if your expert has this feature you can relax and keep it running because it is taking care of your money management. As your account grows you may increase the base currency amount that you are willing to lose.
Another money management feature that the expert advisors can have is the risk-reward ratio. It tells you what is the correlation between the potential win and potential loss that can be achieved with the trade. Depending on the nature of the strategy it should not be lower than 0.7 to 1. However, better is that reward is equal to or greater than the risk. The better ratio will require a smaller winning rate to trade profitably. When you see this feature the expert will probably set stop loss and take profit levels. So, it is a sign that money management rules are satisfied.
Some experts will let you enter the fixed lot size. These experts will also care about money management but you will not know how much you can lose if the trade does not go your way and this number will vary. The testing will tell what lot amount is convenient for your trading account size. These experts will also keep your account safe. You will need to adapt the lot amount to the instrument to trade. It should be lower for fast-moving trading instruments and higher for slow-moving ones. Also, you will need to increase the lot amount as your account grows.
Therefore, money management is a very important part of trading. A great trading system with a high win rate will not generate you the profits if the money rules are not followed. All profitable expert advisors have these rules implemented. Common entry parameters are risk per trade, risk-reward ratio, and fixed lot size. However, before running the expert on a live account you should test it before not only to see if it is trading profitability but also to see how it is dealing with the losing trades.