What is Money Management?

19money280813After you have obtained or devised a spread betting strategy, one of your next priorities is to thoroughly learn the concepts of money management because this tool will help to determine just how a successful investor you will ultimately become. Your strategies can always be substantially improved by utilizing them in unison with a well-tested money management policy.

You can deploy such a policy to help you determine the best amount of your total funds that you should wager per spread bet. For example if you were to risk too much per bet than you may not gain the maximum returns that your strategy could produce if your spread bets are constantly producing losses.

Once you have developed and tested a money management strategy, you should then always deploy it in accordance the famous trading maxim, which states: ‘do not expose too large a percentage of your capital on any one spread bet’. If you stick with such good advice, then you will enhance your skills substantially by using small increments of increasing risk while ensuring your account balance receives the optimum protection at all times.

Many experts recommend that novices should use a simple money management policy which advises that they never risk more than a pre-determined percentage of their total funds on any one spread bet. In particular, two percent is the endorsed limit to deploy.

 

What are the risks involved with spread betting?

Spread betting is similar to all other types of businesses in that it involves substantial risks and the serious possibilities of financial loss. Risks can be a situation, issue or factor that can have a serious effect on your spread betting performance.  However, you will discover that spread betting possesses above average risk levels that exceed those of other more traditional investment mechanisms. This is because spread betting can generate significant high levels of trading volatility coupled with the availability of high leverage facilities. Consequently, you are in constant danger of suffering losses should price turn against your spread bets if you do not take the correct measures to restrict the impacts of volatility and leverage

You must understand that you can never totally eliminate risk from spread betting despite all the strategies and tools that are available. Consequently, you must utilize risk and money management policies that will provide your capital with maximum protection. In particular you must never trade with borrowed money or that which you can ill-afford to lose.

You will find that spread betting entails a variety of risks. For example, despite all efforts, spread betting remains swamped with scams because an army of sellers exist that constantly promote courses, book and automatic solutions of very dubious quality. In addition, you are advised to always perform serious checks on any perspective spread betting broker. For instance, your research must confirm that a broker is, at least, a component of a much larger financial organization, registered on-shore and is a member of recognized and established regulatory body such as the FCA.

Also, you must confirm that your perspective broker possesses a world-class proprietary price feed that can supply you with very competitive spreads. In addition, you must acknowledge that you are at the mercy of your spread betting broker in supplying you with fair value spreads because they are the ones who determine execution prices.

 

Controlling Leverage

After you have selected and enrolled with a spread betting broker, you must then fund your account before you can start trading. Once done, you will then be provided with an extensive leverage facility that could exceed 1:100. Leverage will enable you to open positions of substantial value with just a small deposit.

However, you must realize that such a facility brings with it a serious business risk in that you could suffer significant fiscal losses if price turns against your spread bets. Consequently, you must always remember that because spread betting can generate the most complex of price formations within very short periods of time, you must always trade appropriately.

You must also evaluate the risks that could emulate should part or whole of your spread betting trading platform falter. For instance, how would your equity cope if you were unable to cancel your open spread bets or activate new trades at vital times? If your connection to your broker is via an internet-based solution, would you suffer margin calls or even fraud should you be unable to spread bet at critical times?

You should attempt to minimize your risk exposure by acquiring a good understanding of the main elements of technical and fundamental analysis. As a priority, you should use the concepts, facilities and tools of these two subjects to restrict your losses when spread betting. You can achieve this objective by designing a well-tested risk and money management strategy. Such a policy should advise you to place stop-losses for all your new spread bets in order to protect your equity should price turn against them.

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