What is money management?
Wealth management is the process of managing your financial resources when trading in the financial markets. The goal is to minimize risk and maximize profit while maintaining sufficient capital to continue trading.
Key principles of capital management
- Do not risk more than 2% of your trading capital per trade. This helps to avoid significant losses from bad trades.
- Use a risk-to-reward ratio. Strive for potential profit over potential risk.
- Diversify your portfolio. Don’t put all your eggs in one basket; spread your investments across different assets and markets.
- Use protective orders. Stop loss and take profit help automate risk management.
The importance of money management
Proper money management can protect a trader from losing money quickly and provide an opportunity for long-term growth. It is a fundamental part of a successful trading strategy.