Strategies to Create Robust Money Management System
Trading is nothing less than a number game. The number here is related to money counting. No vocation in the world is more involved with money than the Forex market. In every other industry, you use cash only as a medium to sell or buy products, services, stocks, and many other elements that hold value for our lives. However, in the Forex market, traders apparently use the money to buy and sell money.
So, it’s no wonder that managing money is a success defining skill for a Forex investor.
What is Money Management?
Money management refers to the strategy that involves decreasing or increasing the position size in an attempt to limit the overall risk amount. It’s more about gaining the highest possible growth from business, ensuring the least amount of risk.
A trader can implement money management in his trading strategy in several ways. However, he must get cautious about the bad practices marketed by some scams and inexperienced crowd. Right approaches are more focused on risk-to-reward ratio and other money protecting instruments of your accounts. The correct procedures also allow people to leverage their funds amidst the process of balancing risk.
The sole focal point of any money management system is to protect accounts and accelerate their performance. View page of Saxo and gain knowledge like the experts in Singapore. It will allow you to trade with low risk and make you a better trader.
All the approaches traders take toward money management are basically of two types:
1. Martingale Approaches
The idea behind these approaches is assuming that a losing streak will end, and the consequent movement will eventually yield some profit.
The Martingale methods are not pragmatic, and the market often behaves contrary to the process. In its extreme phase, the method can make an investor lose all his money.
2. Anti-Martingale Approaches
More realistic, and it swells the size of the position and trigger wins. These approaches encourage traders to be prepared for potential downfalls. They will compact the potential risk to ensure a larger profit scale.
Serious Money Management Methods
Independent investors wait and settle for the opportunities that come with significant profit and care about their accounts and make the risk window as hollow as possible.
If you want to get that superhuman ability to manage risk, here are some great methods to orient you in that direction:
1. The 2% Principle
This principle relates to an investor’s account size. The equation for this principle is simple:
Risk per Order = 2/100×Account Balance
This method emphasizes limited or lower risk and suitable to the newcomers and the account holders who more than a million dollars in their accounts. Though it’s not a growth instigating strategy and impedes leveraging the market, it’s safer.
2. Optimal f Strategy
It is designed to determine the value of f, which represents a fraction. The whole strategy is a mathematical model, and it heads for the most optimum fraction. Though the method entitles to disastrous risk, it has enormous growth potential.
Anyone with mathematical inclination will find it interesting.
3. Fixed Fractional Strategy
With this method, a person sets an initial amount of money “X” which determines the number of trades he can run.
If X = $20,000
And Account balance = $30,000
the position size = 1 contract
When the account balance reaches $40,000, the position size will be of 2 contracts.
If X’s value is large, the method yields less profit, but the risk is at the minimum. A smaller value for X poses more risk but has a better growth opportunity.
A proper money management system can unearth profit even in a risky environment. Again, without internalizing a robust money management method, a trader may fall into losses in an optimal condition. So, they should not overlook the concept for their own welfare