Capital Management

Whatever principles a person professes in relation to money it remains part of his entire conscious life. To form, preserve and increase capital — the solution of these tasks is on the agenda of all those who strive for high standards quality of life.

The financial stimulus is an excellent way of making someone eager to learn which is evident in the mass enthusiasm of the population to economic wisdom. What is a deposit, share, hyperinflation and devaluation, financial experts know all those things in each family. Where there is a threat to personal interests, the process of knowing the protective mechanisms does not require coercion. Money management has become a «desktop science» responsible for the welfare of the family budget.

Everyone has learned to properly place the available resources (do not put all the «eggs» in one basket) – it is good that the market allows us to do it. Bank deposits, the purchase of shares and bonds, the purchase of precious metals, currencies — and this is not a complete list of opportunities that are open to an ordinary investor. The situation is somewhat different where capital management is the defining feature of professional skills.

Capital management in financial markets

The trader’s profession makes one look at the concept of «money management» from a different perspective. Brokerages can be thought of as sports grounds where there is a contest for the result expressed in profit taken. Obviously, the chances of newcomers cannot be quoted high, but the Olympic champions are also not born — the bar of achievements should be raised gradually.

The trader’s mastery will grow conditioned there is a good basic preparation done at the initial stage and the first experience of real transactions will not decrease the desire to trade. Do not try to take on excessive heights from the very start (for an athlete a trauma to the musculoskeletal system is a possibility, for the trader — a psychological one, which is much more difficult to treat).

Risks associated with operations in financial markets should be under «vigilant» control — this is the elementary truth, which is a standard routine in all training courses for traders. The difficulty lies in the fact that managing these risks in practice is not so simple. The difference is about the same as driving a car on a simulator, and on a six-lane highway in a foreign city during rush hour.

Time-tested recommendations

The most affordable, liquid and fast-growing financial market — Forex, however, it is also the riskiest one. For numerous new «hunters» for super profits it will be useful to become familiar with the basic rules of money management — minimizing losses and optimizing profits. Although these rules are not blood printed, it is not advisable to violate them. D. Livermore, who has been a millionaire and bankrupt more than once by doing trade as a career choice, formulated them more than 100 years ago. It is worth mentioning that modern traders continue to attack the same «rake» aggressively.

• do not start trading with large lots. The transaction volume can be gradually increased only after confirmation of the forecast;
• the stop loss must always be set, even if the current position gives a feeling of complete safety;
• do not risk the amount that exceeds 5% of the deposit. «Overdraft» will strengthen the emotional burden, which will lead you to making «childish» mistakes. Aggressive strategies are subject to experienced players who risk very selectively;
• do not look for «ceilings» in transactions;

Profit earned is transferred to a bank account. Trade should be at the established limit.

Effective management tools

Diversification of risks

Reduce the risk of combined trade, which a trader can do in one or more financial markets for different assets using different trading instruments. For example, you can simultaneously work with currency pairs and securities, or by buying a currency pair, hedge the risk by selling the option to it. If we talk about transactions only for currency pairs, then we can «play» on mirror pairs. Positions should be opened for buying a sale at the same time, and waiting for the expressed vector to get rid of «excess cargo» (example of mirror pairs: USDCHF — EURUSD buy dollar against franc and euro against the dollar, if the dollar shows growth then the second pair is closed).

Pending orders

The use of pending orders means that the trader «reads the market» and does not act spontaneously. Pending orders are «equipped» with stop orders, which gives additional assurance and a guarantee against significant losses.

Recommendations

• 100% of correct forecasts, alas, do not exist. Maximalist quality is good, but realists win in Forex. And the reality is that if the number of profitable trades is even 10% higher than unprofitable trades, then the trader remains «in business»;
• high leverage immediately takes the trader into a zone of special danger. Most often, the desire to get everything right here right now ends in an elementary loss of the deposit pretty quickly;
• it is necessary to avoid trading on the verge of margin call. If such situations become frequent visitors on the screen of the monitor, it is necessary to reconsider the «policy» of large lots and the number of simultaneously open positions;
• the optimal ratio of losses and profits is 1 to 2.

For a trader, the decisive factor is not just knowledge of the fundamental principles of people management, but the ability to use them in practice. You cannot acquire a skill without doing it all over again. Trader’s habit is to always observe the «holy canons» of money management will become such if the concept of financial discipline will be taken seriously and not only as an empty phrase.