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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. #21
    Rookie layigold's Avatar
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    I have always been telling people that the psychology aspect of trading plays a very prominent role in trading and this is often neglected by a lot of traders today because what they consider all important is having a good trading system . You may have one of the best trading systems in trading industry but if you do not have the right trading psychology that will help you make use of that system effectively , you will still fin yourself at the mercy of the market

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    Quote Originally Posted by layigold View Post
    I have always been telling people that the psychology aspect of trading plays a very prominent role in trading and this is often neglected by a lot of traders today because what they consider all important is having a good trading system . You may have one of the best trading systems in trading industry but if you do not have the right trading psychology that will help you make use of that system effectively , you will still fin yourself at the mercy of the market
    That is where the whole management takes place. In one word I like to call it discipline and when traders are lacking and missing on that then it gets to be hard for them to make money at all from the market. Apparently, it is the misunderstanding people have about forex trading that makes them think that they can trade in forex market without security over their investment.

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    Rookie Sascha's Avatar
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    Quote Originally Posted by Brain View Post
    That is where the whole management takes place. In one word I like to call it discipline and when traders are lacking and missing on that then it gets to be hard for them to make money at all from the market. Apparently, it is the misunderstanding people have about forex trading that makes them think that they can trade in forex market without security over their investment.
    financial management will give us the strict rules about managing our money and every trading activities that using the money. we can monitor our performance and calculate the growth of our account whether it's increasing or falling from our expectation. we can put an alarm for that to remind us to be careful so we won't be trading in less accuracy and focus to get more confirmations first before we decide to take the trades.

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  5. #24
    Registered user ara's Avatar
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    Quote Originally Posted by layigold View Post
    I have always been telling people that the psychology aspect of trading plays a very prominent role in trading and this is often neglected by a lot of traders today because what they consider all important is having a good trading system . You may have one of the best trading systems in trading industry but if you do not have the right trading psychology that will help you make use of that system effectively , you will still fin yourself at the mercy of the market
    That is a general fact and not a secret, because almost all traders know that psychological factors have the most influence on forex trading (more than 50%), the rest is money management, trading strategies, external factors, and others.

    Quote Originally Posted by Brain View Post
    That is where the whole management takes place. In one word I like to call it discipline and when traders are lacking and missing on that then it gets to be hard for them to make money at all from the market. Apparently, it is the misunderstanding people have about forex trading that makes them think that they can trade in forex market without security over their investment.
    Those kind of missundestanding actually only happens to beginner traders, although sometimes experienced traders still have it. Usually experienced traders already know that, and they have a risk management plan, but they are still difficult to make profit consistently. We can see now a lot of traders who say that stop loss is important, but they are still difficult to profit even if they use stop loss.

    Quote Originally Posted by Sascha View Post
    financial management will give us the strict rules about managing our money and every trading activities that using the money. we can monitor our performance and calculate the growth of our account whether it's increasing or falling from our expectation. we can put an alarm for that to remind us to be careful so we won't be trading in less accuracy and focus to get more confirmations first before we decide to take the trades.
    Yest that's right, but here I talking about financial management in more wider, for the long term, for our future.

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    Rookie rinaji's Avatar
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    Wow, you are very capable of financial management. I am sure you are an economist. This is something I have never thought of before, this is a good thought for the long-term goals in our career as a businessman in general and as a forex trader in particular. I have never planned financial management as well as this for the long term, maybe that's the reason why I always fail in building my assets through forex business.

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    If you lose, be patient. If you win, stay humble

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    Trader cutiekc's Avatar
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    Quote Originally Posted by rinaji View Post
    Wow, you are very capable of financial management. I am sure you are an economist. This is something I have never thought of before, this is a good thought for the long-term goals in our career as a businessman in general and as a forex trader in particular. I have never planned financial management as well as this for the long term, maybe that's the reason why I always fail in building my assets through forex business.
    It is really a great write up, I also had to drop a thumbs up. But then again, with such a great way and illustration and information about making use of financial management, another thing that the trader will need to learn is just on how to implement it as well when trading, because just knowing about it will not be enough to make the trader able to trade and become profitable with it.

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    Rookie Sascha's Avatar
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    Quote Originally Posted by cutiekc View Post
    It is really a great write up, I also had to drop a thumbs up. But then again, with such a great way and illustration and information about making use of financial management, another thing that the trader will need to learn is just on how to implement it as well when trading, because just knowing about it will not be enough to make the trader able to trade and become profitable with it.
    there are so many information that has been shared from many different sources but still, things totally depends on how good we apply those rules in our trading and how consistent we keep things accordingly. managing our financial while trading are two activities we must do at the same time both to ensure the safety of our account and keep trading for profits.

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    Irrespective of what we know in the market, no matter what we still need to be able to trade with the right method and approach, that is financial management, putting in good use the risk and money management, they are so much important for our success. As the market has a lot of risks so therefore we need to take control and then invest more time to learning and developing our skills.

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  10. #29
    Rookie Azis Muslim's Avatar
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    Quote Originally Posted by Darkhorse View Post
    Irrespective of what we know in the market, no matter what we still need to be able to trade with the right method and approach, that is financial management, putting in good use the risk and money management, they are so much important for our success. As the market has a lot of risks so therefore we need to take control and then invest more time to learning and developing our skills.
    Remember to put everything in our work to get a maximum performance based on our knowledge and experience about market and this business. We can not expect to get big money if we are still afraid of opening new trades and still doubtful with our own strategy. Have faith on ourself to increase our psychology and at the same time this will help us to increase our performance in trading.

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    Rookie juniorpeters's Avatar
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    i still have problems making profit as a trader but i know that at some point in my trading career i will get to understand how the market really works.i have actually decided to take off from the market and practice my strategy very well so i can start being profitable like many traders out there in the market.i really believe that my strategy isn't the problem here but my problem is psychological and am dealing with it.

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