What is Money and Risk Management?

Discussion in 'Risk Management' started by AlexLutiera, Mar 6, 2011.

  1. Money and risk management are very important aspect of the trading system. Financial operations on Forex are very risky, and often the higher the supposed profit the higher the risk. Following all rules of money and risk management helps reduce losses and increase profits.

    Money and risk management appeared in 18th century, when it was applied in gambling to raise the chances for winning. Mature players followed their own strategies, incurred losses to enjoy profits later. Working on financial markets is similar to gambling because both profits and losses are not predictable. That's why principles of money and risk managements started to be used in the financial sphere.

    It often happens that beginner traders do not take aspects of money and risk management seriously; but this mistake can lead to failure even with a good trade strategy. Not just sums of earned money are important in trading; amounts of losses during work add to success as well. That's why it's recommended to calculate the portion of risk-subjected capital for successful trading.

    MONEY MANAGEMENT- the process of managing money. It includes investment, budgeting, banking and taxes. It is also called investment management.
    Money management is a strategic technique employed at making money yield the highest of interest-yielding value for any amount of it spent. Spending money to provide answers to all cravings (regardless of whether they are justifiable or not to be included in budget basket) is a natural human phenomenon. The idea of money management techniques is developed to plummet the amount individual, firm and institutions spends on items that add no significant value to its living standard, long-term portfolios and asset-basins. Warren Buffett, in one of his documentaries, admonished prospective investors to embrace his highly-esteemed "frugality" ideology. This is the basis of every sound money management formulas.

    RISK MANAGEMENT- the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events[1] or to maximize the realization of opportunities. Risks can come from uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attacks from an adversary.

    Traders and investors should be very aware of this aspects. These are the vital keys on trading and investing that they must take note of.
  2. forex95


    there are a real risk management software .very useful
  3. forex95


    Installation Notes:
    1: The host must have MT4. And that the system can be installed to run on MT4.
    2: Installation must be shut down when the MT4 software.
    3: when you may be prompted to install a virus, please rest assured to use, it is not a virus, but the network security authentication, anti-virus software will be mistaken for viruses.
    4: The interface pops up, the point of the trial to the trial period is very long.
    5: After installation, point template -> point "Book quantitative trading system"
    6: Software for use at the installation site interface.
  4. ....and you want us to install a 'setup' from unknown source?... :mad:
  5. Money and risk management is what trading is all about. Failure to know these terms intimately can lead to an immediate disaster of someone's trading account.
  6. Avir4TG


    The new money management catch phrase has become "position sizing." I couldn't agree more that this is one of the most critical aspects of trading that separate successful traders from losing traders.
    I'm seeing a couple of new products on the market that integrate as scripts which dynamically set the number of contracts (futures) or shares (stocks) based on the traders account equity and their selected risk tolerance. Risk tolerance can be set by %, dollar amount, etc.

    I see too many traders that go in to trades way too large. The proper use of position sizing is guaranteed to keep us capitalized to trade again tomorrow.