Why proper Money Management Skills are so ... - Personal Finance

Online Forex Currency Trading in the futures or forex markets can be a very fulfilling career. Most want to be traders? are attracted to day trading as it is the only type of job out there that allows an individual to potentially make quite a large amount of money with a relatively small trading account, if leverage is used the proper way by the day trader. Leverage simply means that a trader can control a significant amount of money with just a little amount of actual cash in his or her trading account. Leverage is a double edged sword as it can help make a lot of money but also lose a lot of money. It can not only help a trader double or triple his or her account in just one single trade but it can also make a trader lose much more than the amount actually present in the account.

Avoiding such devastating trading situations is a must for all traders and they have to possess excellent risk management skills in order to avoid such situations. By controlling the risk on each and every trade taken a trader is basically assuming the role of a risk manager in a large corporation. This is also called Money Management. The one and only thing a trader can control is the amount of money risked on each trade and of course his or her emotions. The market always does what it wants to do. The trader cannot force the market to go where he or she wants it to go. The market is always right.

This is why Money Management is so essential for the financial well being of a day trader. All professional traders know the importance of this very well. They know that it is not the entries or exits in the market that they take, but the actual act of managing the risk on every trade that they take that will eventually get them the desired results they want from their trading. Even the simplest of trading strategies can be very profitable if proper money management is in place. A proper money management plan also helps in keeping human emotions such as fear and greed out of the equation that is the root cause of destroying many trading careers.

Proper money management skills help in keeping a trader in business for a long time. Money management stops should be calculated by a trader based on his or her trading account size, personal risk tolerance level and trading objectives. If a trader loses say 50% of their account, they need to make 100% to bring the account back to its original size. Proper money management also helps traders in setting a logical stop for all trades that they take. This way a trader will not risk too much or too little on any given trade and give each trade enough breathing room to become a potential winner. Proper Money Management skills also allow a trader to choose the right market to trade according to the traders own risk profile and account size.

Because of the reasons discussed above it is easy to come to the conclusion that proper money management skills can help traders stay in the game for a long time to come which in turn lets them enjoy the fruits of trading for a long time also.

Source: http://www.finanzweb.org/why-proper-money-management-skills-are-so-critical-for-the-day-trader-to-succeed-at-online-forex-currency-trading.htm

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