Money Management and What it Means in Online Trading

This article will explore the concept of risk management and money management for those pursuing Forex trading in Nepal. Successful traders earn their edge in this field only with stronger money management skills when compared to the others. Most failures that one goes through in this business could be attributed to a lack of this quality rather than any other. 

The importance of money management 

The problem with most online traders is that they often underestimate the importance of money management and risk management. However, this is crucial in positioning one’s entry and exit in the market, as well as making the right transactional decisions with respect to one’s trades. Money management is a diverse and comprehensive field consisting of a multitude of aspects. This includes managing capital, allocating the right position size, risk mitigation, damage control, regulation of cash flow, equity management, selection of the right transactions and much more.

Relation between money management and risk management

Although these two areas are both interconnected and of equal importance, it is important to distinguish both of them to better understand and apply both of them. Money management would relate to taking the right position size and ensuring the right investment of capital. Meanwhile, risk mitigation or risk management, is more centered towards implementing controls to the outcome and ensuring that the chances of loss are reduced.

Often, the term ‘money management’ could be inclusive of risk management as well. If one takes a broader view of this term, it could spawn a broader approach around the entire forex trading process that includes having the right education and being able to accurately analyze the market, making predictions, etc.

Steps to take:

With money management, one would need to channel his efforts towards maximizing his usage of investment and capital to carry his portfolio forward. The process would include two major steps:

1) Determining what designated fraction of an account’s total equity to invest and to risk on any trade that is conducted in the US Dollar, Japanese Yen or British Pound. 

2) Calculating how many contracts one should hold in his transaction once an entry is conducted. 

If one manages to master these two vital steps, he or she would possibly be more successful at regulating their capital flow and determining positive outcomes on the transactions in the future. 

Conclusion

Many beginners to online trading in Nepal utilize weak money management structures, and this leads to bad performance. One needs to dig deeper and to flesh out better strategies for controlling the outcome of investments. If you require assistance in this area, then get on-board with WesternFX. We are among the leading international brokerages in this scene, with clients across the world benefiting from our quality services. We can show you the path towards better risk management/money management for improving your chances of profit in this space.