In most cases, traders are focusing on the reward side of leverage trading rather than the risk that it involves. A reward is only the first half while the risk is the second part of your portfolio design. It is more on money management as well as the nature of trading that comes after a series of risks.
When talking about money management, you can say that it is all about the risk side that trading normally offers. It refers to the entire system of countermeasures that needs to be avoided at all costs to avoid financial ruin. Money management is strongly related to managing risks and measuring them as well as utilizing your capital efficiently.
Most of the time, when you trade, you will come across two things – the reward and risk. Unfortunately, there isn’t a way to measure these things precisely. The amount of risk-reward is dependent on how tolerable these risks are for you. Human instinct tells you to be happy whenever you receive rewards and profits. However, when it comes to risks, different thoughts are shared by different traders.
FACT: No Trading System Is Completely Profitable
There has been a constant battle of a trading system claiming that they are the best in providing services to traders and renders 100% profitability. Unfortunately, there is no trading system that can guarantee you loss-free trading. Although ideal and many traders want to have it, this trading system is unachievable throughout the decades, despite the countless efforts to develop one. Every trader aims to have a flawless trading strategy but this will only become the obsession of many, while losses are always on the side.
Risk of Ruin
Ruin – this is a highly possible and common scenario in leverage trading. Every day, countless traders are being kicked out of the market because they blew up their accounts after failing to assess the situation and use a control and management tool. In trading, there are endless possibilities of ruin and flawlessness.
What Should Be Your Aim When Creating Money Management?
The way you manage risks and rewards determines your final success or losses in the trading strategy that you utilize. Therefore, what is the major aim of money management? It is to maximize the overall returns despite the risks being minimized at the lowest. This can also be applied if you want to make regular, a string of profits while keeping the probability of losses at the minimum.
Trading Systems Must Be Designed With Trading Risks on Mind
You might have the best trading system but still, it won’t guarantee risk-free trading. With money management, it can turn such a trading system into a more reliable one. But you must bear in mind that money management alone will never save you from bankruptcy. You also need to design a strategy that actively demonstrates more profits than losses. This system can be based on fundamental and technical indicators. For different traders, they use a variety of methods and systems when entering the market. But all traders must implement a good money management system to thrive in the financial market.