With money management we mean the set of techniques applied to have a good management of money and one’s investments. Money management is made up of all the possible actions aimed at the optimization and safeguard of the investments and the managed budget.
Applying profitable money management techniques means maximizing the profit in relation to the investment you want to make. It is therefore essential for traders to have an in-depth knowledge of these techniques and to apply the right strategies to optimally manage their money.
In the case of trading online, a good money manager works by evaluating, before making the investment, what the expense will be to make it (transaction commissions) and what the return target he wants to achieve.
Managing the risk of loss is the first step in avoiding making irreparable mistakes on the financial market.
At the basis of money management there is a correct use of the strategy to be implemented on the market. For example through take profit/stop loss orders, which allow us to predetermine the price level at which to close the position if it approaches the desired profit or the maximum loss we can bear to achieve.
money management techniques are also important to know how much money can be invested. A good money manager knows that he must never expose more than 2-3% of his capital for a single investment. In this way traders are able to secure their money, in the event that the trend that has been identified changes course drastically.
In addition to these aspects, money management also plans to take into consideration the taxation applied to our investments, in terms of direct taxes (capital gains and tobin tax) and indirect taxes (stamps on c/c).
To learn about money management techniques and their advantages, Money.it recommends reading the guide: What is Money Management? Risk Management Guide.
