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Money management in online trading

Money Management is an essential component of trading the finance-related markets especially in moments of volatility. It is a defensive concept that keeps you in cash reserves so its possible to trade an additional morning and underpins rewarding performance. On an elementary level it indicates if you have a good amount of new cash to trade extra positions. A good trading system or simply tactic is definitely worthless without a technique of managing your finances. You love to start trading appropriately? You prefer to become profitable in the markets right? Very well, you will not have any money to trade with if you do not follow good money management practices! Money management’s purpose is always to manage the danger as well as distribution


of money so that one loss or even several consecutive losing trades should never cause the inability to keep up a trade, and would never ruin a brokerage account by leading it to an unmanageable state. In a more comprehensive sense, capital management also means a technique of keeping present profit in an open position and a strategy of fixing current revenue. Let’s look at the situation in the most simple of terms. Let’s say you spend 50% your money in one purchase, and because you leverage your finances significantly – also principally a bad concept… always leverage thoughtfully – you finally end up losing it all. Then, you simply must generate a 100% return on your resting money if you wish to break even. However, purchase 10% and lose it, and you’ve need to earn a perfectly reasonable earnings of approximately 11%. Invest 80% and lose it, though, you’ve got to make a 500% profit with what you’ve got left. 90%, and you have to make an 1000% return. Notice the exponential curve that’s occurring here? The specifications of money management should contain the following ideas: 1 . Investing no more than a 10% of your total capital . Which means more than 90% of the player’s own capital should be left for use in unusual situations and to continue productive work . 2 . Investing fewer than 2% of total money in one position . This allows you to cover against the damage caused by investing all the finances in a single trade . 3. Financial risk rate in every transaction should be less than 2% of the total capital. Observance of this rule will keep the losses of a trader in a position below 2% of his or her entire money. Some consultants strongly recommend lowering this amount to 1.5% of whole funds. 4. Always put stop trading orders (stop-losses). A Stop-loss request is set by the trader to minimize large losses. The stop-loss order is a specified price on which a market player shuts the position in case of undesirable price changes in the market. The level of stop-loss depends on the trader’s willingness for losing trades in the current transaction as well as examination of market situation. 5. Don’t break your money management principles because of the fact that discipline is your key to survival and good results as a on-line investor.

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