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  1. #1
    Registered user ara's Avatar
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    Financial Management of Forex Trader

    Hello all, Now I want to talk a little about financial management of forex trader. This is my personal idea, so you have to respect me even if you agree or disagree. At least this can be a small motivation to change your mindset as a trader.

    PROEM
    How long have you become a trader? Are you a financially monotonous person? Are you still have problems in making profit in forex trading (still unprofitable) or you have become a profitable trader but you are still difficult to develop into a professional trader or a big business in forex business?
    Whatever your answer, I hope you stay relaxed.

    If you are still unprofitable, you should stay relaxed, you have the opportunity to become an expert trader, I hope this article can be a motivation for you.
    If you are able to become profitable, and have income in forex business, but not much, you only have low investment in forex, your Income from forex trading is only enough to fulfill your daily needs for a month or two months, you should stay relaxed, you have the opportunity to become a big trader . I hope this article can give you a little idea.
    If you are a profitable trader, you have a big income from forex trading, but you are difficult to develop business again and again? Or you are confused in allocating your money next? Please calm down, I hope we can discuss here.
    If you are a profitable trader, you have a big income from forex trading, but you always spend all your income, so you hard to grow your business? This is a serious problem for you, you can't relax in this case. I hope you can change after reading this article, you have to make big changes financially. Especially if you spend your income just for unimportant things, for example: spending your money by going to a night club, spending your money just for beauty salon, for branded fashion, and for anything that is not important for your life.

    ABOUT FOREX TRADING
    I will not talk much in this case, I will just take the idea of many traders, they say that there are 3 important things in forex trading:
    1. Psychology. They say that psychology is the biggest factor affecting a forex trader, let's say 80% or more.
    2. Trading Strategy. There are many trading strategies in forex trading, you can find millions of trading strategies that are shared for free on the internet, trading strategy allows us to analyze the market and take decisions for entry and exit. To be honest I'm not very good in terms of market analysis. But you can find many members here who are good in analyzing the market, I even find member who are expert in market analysis, I don't mention his name, but I really appreciate him.
    3. Money Management. I read an article in this forum about money management, here. Yes, that's a great article, but I will not talk about it, because I think it's very limited. I will talk about money management more broadly. That is financial management of forex trader. I take the word "financial management" rather than "money management", actually I'm not comfortable to say money management, although I often say money management in many posts, but to be honest I am more comfortable when I talking about financial management. I don't really understand the similarities and differences of money management and financial management. Because both have the same meaning if I translate it into the local language (my national language). But I have a slightly different view on this, if I say money management, then I feel I don't involve assets. But if I say financial management, then I feel I'm talking assets as well. Although both are the same meaning when I use them in my national language.

    Conclusion: Do you know the structure inside a company? A company must have a corporate organizational structure. For example: Primary Director, planning director, general manager, finance manager, personnel manager, operations manager, IT manager, accounting, admin, division board etc. Well..., Forex trading is an independent business, you are only responsible to yourself (except manager), you have no responsibility to others. Like you have a company but you manage it yourself, without any organizational structure and without the help of others or employees. You are the owner, you are the financier, you are the director, you are the manager, you are the accountant, you are the admin. That's why forex trading looks like simple but complex.

    FINANCIAL MANAGEMENT
    Definition
    As I have explained above, money management and financial management have the same meaning when I translated both to my national language.
    But I will take a definition from a source about Money Management and Financial management, so you can formulate both of them.

    Money Management (taken from investopedia) : Money management is the process of budgeting, saving, investing, spending or otherwise overseeing the capital usage of an individual or group. The predominant use of the phrase in financial markets is that of an investment professional making investment decisions for large pools of funds, such as mutual funds or pension plans. Money management can also be referred to as "investment management" and "portfolio management."

    Financial Management (James Van Horne) : "All activities directly related to the acquisition of funds and the management of assets (assets) with the overall purpose."

    A professional trader must know how to manage all the elements and terms of finance, this must be done because finance is one important function in achieving your goals. The element of financial management must be known by a trader. Let's say a trader does not know anything that becomes elements of financial management, it will appear difficulty in running the forex business. Therefore, a trader must be able to know all the activities of financial management, especially analyzing the source of funds and its use to realize the maximum profit. A trader must understand the flow of money both external and internal.

    From the description of the above background, I can take a few things:

    Financial management of forex trader is an activity of planning, budgeting, inspection, management, control, search and deposit funds by traders.

    The financial management of forex trader deals with 3 activities :
    1. Activity in the use of funds, the activity to invest funds in various instruments. Here we use it in our trading account, here we know about risk reward ratio and winning rates (you can read my thread here). But I will talk more broadly. I divide into six types:
    *Liquidity Ratio, this ratio to measure the level of liquidity of any existing instruments, so we know which trading instruments are the most liquid and provide the optimal income related to the timing of acquisition.
    *Leverage Ratio, this ratio is used to determine which leverage is more optimal for you in managing your trading account. Each broker provides different levels of leverage, you should be wise in choosing according to the level of comfortable with your trading strategy and psychology and of course safety for your capital.
    *Activity Ratio, this ratio is used to measure management effectiveness in using trading strategy. All activity ratios involve a comparison between the trading levels of your trading strategy. Here we look for a good trading strategy with a comparison of the quantity and quality of our trading strategy.
    *Profitability Ratio, this ratio is used to measure the effectiveness of management seen from the profit generated and loss. We may often talking about Winning Rate or Win Loss Ratio.
    *Growth Ratio, this ratio is used to measure how well a trader maintains a position of equity growth. You can see from the performance of your trade history graphs, all the time, monthly or weekly. Good graphics continue to increase like a climb.
    *Risk Reward Ratio, the ratio reflects the combination of the effects of risk and rewards.
    2. Activity of fund acquisition, that is activity to get fund source, both from internal fund source (profit or income from trading activities, rebates, affiliates, prize of demo competition, deposit bonus, etc) and external fund source (personal savings, bank loans, investors, stolen funds, etc).
    3. Asset management activities, once profits are obtained and allocated in asset form, assets should be managed as efficiently as possible. Suppose you have monthly income from forex trading, but still in small quantities, because your investment in forex is small. What should you do? Of course the first thing you should do is grow your investment. For example, you are using compounding system, or you open several new trading accounts, or you expand your investment into stocks, commodities, crypto currencies, PAMM, Forexcopy, or you can expand into other types of investments, or expand to other types of businesses. Remember: Your computer and smartphone are an asset too, so you should take it from the smallest asset to the biggest asset.

    There are few principles of financial management :
    *Consistency, The application of your financial management must be consistent, not changing from time to time. But keep in mind that the system of financial management that has been taken does not mean no adjustments should be made, in case of significant changes in financial conditions. Such changes should be accompanied by a clear and acceptable reason. Inconsistent financial management may indicate that there is manipulation within you or there is a problem with your psychological condition.
    *Accountability, You should be able to explain the use of funds and what things have been accomplished. This principle is required as a form of accountability to yourself.
    *Transparency, Have a complete, reasonable, timely and accurate financial report. If you use the capital of the investor for forex trading, then your financial statements are not only for your own, but also must be accessible by your investors. This deviation from the principle of transparency may indicate that you have hidden something, and it can seriously damage your business finances. Giving investor password is the simplest way of doing this.
    *Viability, All operational expenses and those at the strategic level must be adjusted to the existing funds, this should be done so that the financial health of your business can be maintained. You certainly want the continuity of business does not stop, operate continuously in a sustainable manner. Financial management is required to develop a financial plan that can indicate how far you can execute a strategic plan in meeting the necessary financial needs.
    *Integrity, You must have a qualified level of integrity in carrying out your business operations. In addition, records and financial statements must be maintained with integrity by providing complete financial information and a high degree of accuracy in financial records.
    *Stewardship, Financial management must be able to effectively manage the funds already earned and ensure the funds obtained will be used as possible. Financial management should do so with care when strategically setting out, identifying financial risks and setting up and creating a financial control system that best suits your character.

    Financial Management Objectives
    The main purpose of financial management for traders is to maximize and grow investments, or expand into other types of investments, or expand into other businesses in other areas, so that you ultimately have financial freedom or become a professional trader or a big businessman. So, financial management aims to MAXIMIZE your finances, business, and assets. Management should be able to suppress unnecessary money circulation. Activities that could harm your business. Don't waste your time, you better have a far-sighted view, your future is more meaningful. If you can't afford to make 50% -100% profit per month, why should you force it? 10% profit per month will be more effective for you and also guarantee your future better.

    But one of the most important things in this article is: If you want to be a big businessman, or at least you hope to become a great trader or a trader who has big capital, then you should have a clear concept about your financial management plan, and apply it appropriately and be patient. Your patience today is a rose in the future, at least that is done by a great man like Warren Buffett.

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    Last edited by ara; 06-24-2018 at 09:27 AM. Reason: edit words

  2. #121
    Rookie Silhouette's Avatar
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    Quote Originally Posted by Abhishekwala View Post
    Harder than earning profits is the retaining of profits because many traders here earn good profits but in their next trades lose a bigger amount. That is how our ability to stay disciplined and to use a strategy with suitable risks, reflects in our performance and output. By starting this business we accept all the profit potential and risk involved. Success in every business depends on the skills of the businessman and his experience.
    Perhaps it's their loss management they couldn't handle because they can analyze market well but failed in limiting their loss amount until they make their account suffers big losses. This business teaches us about having balance in all things, not only to get the ability to make money but also to keep our account as safe as possible. Losing sometimes understandable but don't lose a lot and get margin call to stop out.

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  3. #122
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    Having the right management is what gives us the chance to manage risk and increase our chances to which we can build a promising trade. Forex will continue to be the right market where the possible means of making profits and loss can be very high. What we must do as a trader who wants to make profits here is that we learn and follow the means of good management. Bad management will easily result to loss so we should have a plan to manage our investment and see we can have the possible means to earn from this trade. If we can manage this trade it's possible to build a quality earning that would as well help in making success.

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    A very strong level of management will give traders the chance to manage their capital and in turn work on their goals to see that good profits can be made. A good management is necessary and with all plans put in place, we will likely to succeed and we can have possible chance to keep trading better. It's good we manage risk and its important we make every decisions to have stable management and see we can earn with the right profitable system.

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    Quote Originally Posted by Ulthred View Post
    A very strong level of management will give traders the chance to manage their capital and in turn work on their goals to see that good profits can be made.
    yes management can really make them better here but its not enough here, for success we need to work on analysis as well, for trading well we need of both some good management and good analysis as well, one is important for earning and one is for safety, so if we have we can trade in right way but if we do not have these we can not trade safely, this is our reality actually

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    It is really important to get to manage our account properly. If we can have an effective management of finance in real life then we can do the same with the trading account we have got. That is just the basic fact about it. if we have poor management, then we will likely have poor management in our trading account they work hand in hand, so we need to be so much careful.

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    The importance of good money management in our trade cannot be overlooked. This is what enables us have the right chance to deal with loss and see we could improve to start making a good trade that would help us win. By managing our capital, we are thereby creating means to survive and have what it takes to see we can make it through. Learning will be important and if we can build a system we will know how to improve and learn to become profitable.

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    Quote Originally Posted by Tonycee View Post
    The importance of good money management in our trade cannot be overlooked. This is what enables us have the right chance to deal with loss and see we could improve to start making a good trade that would help us win. By managing our capital, we are thereby creating means to survive and have what it takes to see we can make it through. Learning will be important and if we can build a system we will know how to improve and learn to become profitable.
    We need to have it all the times, because with the use of money management it will help us become way more profitable, managing our money is so important in forex trading because that is number one thing that needed to be done, once we can manage our money, we can really get to perform good trades, that is also the best way by which we can avoid taking bad risk and then focus on only having good trades been taken.

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    Everybody knows that money management is the key to success in forex market but not everybody respects money management rules due to human psychology that does not let to recognize our mistakes and traders believe market will return back. Yes, market will return back but when? Traders do not have time to wait because they have positions with leverage and they should be closed.

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    Quote Originally Posted by Krosneles View Post
    Everybody knows that money management is the key to success in forex market but not everybody respects money management rules due to human psychology that does not let to recognize our mistakes and traders believe market will return back. Yes, market will return back but when? Traders do not have time to wait because they have positions with leverage and they should be closed.
    Everyone knows, but then, are they making use off it as they should? That is one factor about it, if we can actually get to know the way to use it and then have the discipline of making use of it, I am sure it will add to how profitable we get to become, money management is so much important, always take time to implement the use of your money and risk management more often but you know, discipline have got a great role to play.

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    Quote Originally Posted by Makaveli View Post
    Everyone knows, but then, are they making use off it as they should? That is one factor about it, if we can actually get to know the way to use it and then have the discipline of making use of it, I am sure it will add to how profitable we get to become, money management is so much important, always take time to implement the use of your money and risk management more often but you know, discipline have got a great role to play.
    to be honest, it's a no for the answer. sometimes we can keep our discipline above all and sometimes we just make mistakes and forget about our own setups. pretty normal for traders who basically vulnerable to mistakes because we can't always remember things at their places. that makes us human and to help ourself from losing a lot, we use our efforts to create specific managements so we can change our habit and limit everything to its proper place.

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