Intro
In our business and personal lives, we have to work with money. And those who can manage money properly do not really have much thought in life. No matter how big or small the job or business we have, there is money management. Proper money management is one of the most important part of our life.
If we talk about trading then this money management is very important for any new or old trader. You should not start trading without managing money properly as you will face a loss and you will not find a way out of this loss. So, it is important to have a clear idea about money management before you start trading.
Source: Image by TheDigitalWay from Pixabay
Money management is very important especially in the case of Forex trading because there is a lot of scrutiny and finding out where your investment will be less risky and how to make a good profit from this situation. I will try to share in detail what I know about money management and portfolio management.
Money management
Without going into the conventional language of the book, if I want to say in a simple and natural way, the point is that if we do a trade, if my price is favorable, then I will gain from it. I will lose with unfavor. Now when money is traded or invested by thinking about how much risk you have to take to gain and how much you can minimize the loss by sacrificing, this is called money management.
There are different types of traders among those who work with money. For example, some may want to take short-term benefits while others may want to take long-term benefits. There are some who invest and trade very little money and there are many who invest a lot of money and trade from it. So, depending on the type of trader, how much risk he will take in order to make a certain profit, he has to adjust it for a certain volume from many analyzes and managing.
Source: Image by Thomas Breher from Pixabay
There are some traders who invest without much analysis and think of it as a normal business. In fact, it is not a normal or conventional business. You have to trade and invest keeping in mind how much risk You can bear here. Otherwise, there is a possibility of losing capital due to high risk. So, you can easily understand how important it is to manage money in trading. It is not impossible for those who will be able to analyze and manage profit and risk to benefit from it.
One of the most important part of trading in terms of money management is that before you start a trade you have to think about how low the value of the trader is and you will actually get out of the market because you have to set a plan at the beginning of How much can you sacrifice if you want and if there is a loss. It's a place where you can't drive all the time and have to brake occasionally. Money management is like an accelerator or brake for you when you are trading, just as you sometimes have to press the accelerator and then brake while driving. Sometimes you have to stop, and sometimes you have to go very fast. But everything will be within the pre-determined limits.
Source: Image by Pete Linforth from Pixabay
Those who trade or invest in the market do not have control over the market so the welfare lies in getting out of the project without blaming the market for any kind of loss but sacrificing less loss is an important part of money management.
Many people may have made good money in the short term, but in the long run, they make a loss that will ruin all their short-term profits. In other words, the decision of money management cannot be taken due to greed. Be careful here and be an analyst. Money managers and successful traders are the ones who can do the risk return trade off. So, invest and analyze with long-term or short-term research-based thinking. You will see that you can manage your money, you can minimize your risk for this money management and you can make a profit from here.
Portfolio Management
In case of portfolio management we are very much familiar with the term that is quoted by Warren Buffett that don't put all of your eggs in one basket. And this is the basic concept of portfolio management. You need to to make a Portfolio which will generate optimum level of revenue with moderate level of risk. By diversifying the investment or trading project we can set our portfolio. A project can be very much beneficial but only investing on that project is not a good choice for a longer period of time.
If you have a small amount of money at your hand for trading or investing you need to segment this money into at least four categories so that you can invest your money into 4 projects. It will minimise your risk to a great extent. Some projects are a very much profitable and some project are less profitable but in case of less profitable projects there is a minimum loss as well. We know that higher the return higher the risk and vice versa. So if any project is highly profitable it is not the only choice for any traders. You need to to sacrifice some profit to minimise your risk as well that is called portfolio management.
For example if a country is strong enough with one industry like in Bangladesh with garments industry, Bangladesh need to focus on Other industries as well so that it can give some lower return but still they have other options so that they can sustain When or if any situation creates for garments collapse. This is happening for money market capital market and trading options as well. You need to invest on several kinds of projects like high profitable to the low profitable and long run 2 short run projects so that you can minimise your risk at any situation which is generated by Warren Buffett that don't put all your eggs into one basket.
Here everything I have explained is about from my theoretical experience of my study. I had not such kind of training experience that's why I cannot share my experience here elaborately. But if you follow these theoretical guidelines then I hope you can have a good knowledge on money management and portfolio management. In case of my portfolio, I try to use portfolio management technique in case of such kind of situations like simple portfolio in steam engine. I try to maintain keeping some other tokens in steam engine so that I can manage if any token’s price goes down dramatically, then I can mitigate risk through the portfolio management technique. You can see from the screenshot that my steam engine portfolio that all tokens are not risky tokens and some tokens are risky but return for those kinds of tokens are high as well. This is what you need to maintain when we think about portfolio management.
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