Methods of money management and risks

Methods of money management
Methods of management of risks

The theoretical knowledge and the experience are necessary to make money in any financial market. This experience of work includes:

The fundamental analysis
The technical analysis
Management of money and risks

The fundamental analysis allows to determine the dependency of the types of change of different currencies in the economic situation from the countries, it explains the objectives and the instruments of the financial policy of the central bank, and reveals the proportion of the different financial markets, the reasons for his development and the stagnation. The fundamental analysis is used in the medium and long term for the prognosis that evaluates the perspective of a market situation. One is based mutually on economically interlaced foundations. The greater difficulty is in the fact that the changes are one of the factors that can influence in all the others, whose number varies from 20 to 50 following the country. It is why the fundamental analysis is not used by everybody. Only the 10-20% of applies it to the retailers in their practice.

The technical analysis includes the examination of the diagrams of the prices, the history of the prices, and the number of changes in the quote in a determined term of time. He is very comfortable to use because it in line offers data on the prices that are available. The technical analysis, mainly offers information on the activity of the market and only conditionally on the volume of market considering only per short periods of called time terms.

Management of money and risks is third and is the important aspect but of the commerce system. The financial operations in Forex are very risky, since when the benefit is higher it supposes that there are higher risks. As a result of the management of all the norms of money and risk it helps to reduce the losses and to increase his gains.

Management of money and risks appeared in century 18, when it was applied in the game to increase the possibilities of winning. The Work in the financial markets is similar to the chance games since as much the gains and losses are not predictable. It is why the principles of money and managements of risk began to be used in the financial scope.

Often it happens that the nascent operators do not have the aspects of the money management and risks in serious, but this error can lead to the failure, even with a good commercial strategy. Not only the gained sums of money are important in the commerce, the amounts of the losses during the work can also add the success. It is why it is recommended successfully to calculate the portion of risk capital put under negotiation.

Methods of money management

In the market of Forex the retailers must be campuses to distribute the capital correctly, to calculate the amount of money involved in an agreement to obtain sufficient benefits, and in case of losses not to lose all the deposited money.

For these aims the special methods of the administration of the money exist:

Absence of money handling. Many retailers who barren a position do not count the money used in the operations, they do not calculate the approximate gain and the possible losses. This is one of the tactics. But the capital is not very great will disappear after several agreements.
The multilateral contracts. Several positions of opening of the different instruments in Forex, as EURUSD and EURGBP in the case of the prices move in the right direction, the operator can obtain good benefits of these contracts. As much the losses and gains in these agreements can be significant.
Fixed sum of money. Following the amount of money in his account the retailer decides how much one or the other position can be put in risk when barer. The retailer does not exceed the limit that has fixed for it.
Fixed percentage of capital. This method is similar to the previous one with the unique difference of which the retailer settles down the percentage of the capital and not the amount of the same capital.
Coordination of the gains and losses. It is necessary to maintain the statistics of all the operations (number of losses, triumphs and their connection). This relation sample that the losses and triumphs take followed returns or several losses of several successful operations. It has sense to increase the volume of the position after a series of losses of the hope to win and, on the contrary, to fall again after a positive period waiting for losses.
Intersection of the curved movable capital average. The principle is based on the well-known method of the average moving body like a signal to enter the market or to leave him. The average moving bodies (one length and another short one) are used to consider the results of the neat supplies. If the short one over the curve is very long it is a signal for the opening of positions to obtain benefits, and if it is underneath her, then better times are about to come.

Once chosen one or the other method of management of money for the commerce, you will be able to rationally use his money, and that will bring benefits. The methods of money handling are applied before the opening of the positions

Methods of management of risks

In the negotiation in Forex, the investor has the opportunity to multiply his money, but also the risk of losing future benefits and, on the other hand, the inverted capital. Deviation of the average of awaited benefit is what determines the risk of the investor in the financial market.

This deviation can bring so much high gains as great losses.

The management of the financial risk automatically does not imply the negotiation successfully, but that influences to a great extent. The entire currency transactions stand subject to risks, therefore, it is possible to reduce the potential losses by means of the application of general methods of management of risks:

Use of Stop-orders;
The partial inversion (to invest a part of the money);
Oriented commerce of tendency;
Handling of the emotions.

The methods of management of risks are applied after the positions are open. The main method of management of risks is to make orders of reduction of the losses. Stop-Lost is a point in which the operator lets the market in order avoid an unfavourable situation. When barer a position is better to use stop-Lost to make sure against additional losses.

Several types of shutdown signals exist:

Initial shutdown. Initial shutdown. It determines the percentage of the quantity of the guarantee that the retailer is prepared to lose. With a price in movement against of the position and reaching a level of the position reiterated by the retailer, the position is closed with losses.
Tracking of shutdown. With a price in movement along with the position, the shutdown of the signal is immediately used after this one in a proportion determined by the operator. In the case of change of this tendency the price arrives at this signal and the operator leaves the market, but perhaps even with some benefits (following the time…)
Benefits. The position is closed after the gains are obtained.
The limitations of time. If the market cannot provide the percentage of benefits anticipated in a determined term of time, the position is closed.