You’ve probably heard about people who’ve invested no more than $1000 into Forex trading, and made millions out of it, just like you must have surely heard of many who started off with a huge investment but ended up losing every cent. So, why can things go in such opposite directions? This simply proves that the way you manage the money you invest is much more important than the amount of money you invest. In Forex trading, this is what’s referred to as money management.
Money management is an art that makes the difference between simply earning money, and the ability to preserve the earned money and make it multiply.
More Money Comes from Good Money Management
Trading is exciting but its aim is to make the trader a decent amount of extra profit. Money management consists of three steps:
- First Gain New Money
- Then Preserve the Gained Money
- Lastly, Utilize the Gained Money to Make More
Gain New Money
In forex trading, money can be gained by executing trades that make profits. The key is to learn how to make profits in any trend, volatility or price movement. That’s not to say that you must trade in every situation, but rather that you won’t let any situation push you out of the market due to lack of experience, and your revenue shouldn’t have to dry up. The idea is to keep new money coming in, even when it’s not big amounts of money.
Preserve Gained Money
Gaining money is only half the battle, preserving it is the other half. Don’t bite more than you can chew. Financially speaking spend but don’t exhaust all your money and always make sure you have savings. And in all the success don’t forget to stick to your winning plan so you can continue making profits.
Utilize Gained Money
Now that you have the money, and you’ve managed to not spend it, it’s time to put it to good use, in order to make more money. The best way to do that, is by allocating a percentage of your profits and savings for reinvestment. This way you are utilizing the profits to potentially make more profits. Static money will eventually be used and ultimately lost. By utilizing your profits to increase your capital, you give yourself more freedom to trade.
Having said that, keep in mind that you should never put your eggs in one basket. You may diversify your investment and instead choose for mutual funds or a realistic insurance scheme. As long as you’re using your money to generate more money.
To conclude, money can be a powerful recourse for more than just buying products and services, it’s a way to continue increasing your capital. This can be done through strong management skills, which an be learnt and perfected.