Financial Management of Forex Trader
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    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

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    Rookie Lyon's Avatar
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    ara, I agree absolutely on what you have wrote, quite a lot educative article, though we have a lot of money management tips. But the fact in forex trading market is that, most times we lack discipline to implement such thing. For instance, my concept of financial management or money management in forex trading is making sure that I am not risking more than 30 percent of my whole total amount of money I have. For instance, if I have about 5000 dollars in my bank account, I only invest 2000 dollar which is 30 percent of it and then I risk nothing more than 3 percent on each trades. I have been doing this, but sometimes I lack discipline and then do some other thing out of the plan.

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    Rookie Silhouette's Avatar
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    Quote Originally Posted by ara View Post
    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.
    Although there are plenty of strategies shared for free in this business, unfortunately they may not work properly because many strategies has hidden terms or rules which actually can be understood by their creators or developers. My suggestion is to create our own strategy based on what we know about market. Our knowledge and experience in trading are our limit to make the strategy according to our levels.

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    rules made to be followed, not to be broken

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    Registered user ara's Avatar
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    Quote Originally Posted by Lyon View Post
    ara, I agree absolutely on what you have wrote, quite a lot educative article, though we have a lot of money management tips. But the fact in forex trading market is that, most times we lack discipline to implement such thing. For instance, my concept of financial management or money management in forex trading is making sure that I am not risking more than 30 percent of my whole total amount of money I have. For instance, if I have about 5000 dollars in my bank account, I only invest 2000 dollar which is 30 percent of it and then I risk nothing more than 3 percent on each trades. I have been doing this, but sometimes I lack discipline and then do some other thing out of the plan.
    Yes, it is a classic case, I also have the same problem as you, even till today I still have that problem.
    Lack of discipline, this is like a monster for a trader, I am always difficult to solve this problem, honestly I can't overcome the problem indiscipline even though I have more than 5 years experience in forex trading but I am still difficult to get out of this problem. I think you are also experienced traders who have many years of experience in forex business. So I think you understand what I feel.

    Yes I have to say about this many times honestly, I am very difficult to be a discipline trader, maybe this has to do with the discipline of my personal in daily life, so I find it impossible to have a good level of discipline, this is like a reflection of self. But I must have the way to overcome it, at least I have to minimize, that's why I have my own way in this, yes ... I'm not trying hard to be a trader full of discipline, but I am just looking for ways to avoid situations that make me undisciplined, I think everyone has their own way in this case because only ourselves who know we are. Honestly, I only open the chart 5 times @ 3 minutes a day. Although I have full days of time to spending in forex trading, but I don't want to do that, because I always have serious problems with discipline only if I stare at the chart longer. I prefer to spend my time just for playing games, watching korean dramas, cooking, shoping, or hanging out, or reading / posting on this forum. I prefer to do all of these activities rather than spending much of my time sitting in front of a computer or smartphone screen to stare at the chart that will eventually make me become aggressive in trading. This means I set and forget trading system.

    Quote Originally Posted by Silhouette View Post
    Although there are plenty of strategies shared for free in this business, unfortunately they may not work properly because many strategies has hidden terms or rules which actually can be understood by their creators or developers. My suggestion is to create our own strategy based on what we know about market. Our knowledge and experience in trading are our limit to make the strategy according to our levels.
    Yea agree,... just can be understood by the creators...., so ... there is no other way than have our own trading strategy and spending the time to master it.

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    Rookie Azis Muslim's Avatar
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    This honestly good but since there were too much writings, I can only take some good points from your thread. Psychology does play biggest role in this business which could affect our performance both in long and short period of time. Even with the best strategies, we still can not make any good trades if our psychology management is terrible. I once heard my tutor told me that emotions are destructible and those who failed to control themselves with emotions, they will fail early.

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    Quote Originally Posted by Azis Muslim View Post
    This honestly good but since there were too much writings, I can only take some good points from your thread. Psychology does play biggest role in this business which could affect our performance both in long and short period of time. Even with the best strategies, we still can not make any good trades if our psychology management is terrible. I once heard my tutor told me that emotions are destructible and those who failed to control themselves with emotions, they will fail early.
    That is most of the most important aspect in trading, while a lot of traders are looking at he means of trading with the use of strategies without learning and knowing the means by which the traders can trade with the use of good emotional control, that has been the cause of losses. Greed and fear is so big that they have made a lot of traders fail.

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    Trader cutiekc's Avatar
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    One most important thing in trading is the way the trader has managed their trading account, it is not all about having a good trading strategy and all that, but your ability to manage your trading account would determine the success you get from the market, First of all we ought to make sure that we are in the right discipline track to manage our trading accurately.

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    Effective management is one of the best ways of trading forex and this is what will really give us all chance to protect our capital so well in forex. As a trader, making the right decision to plan on this trade is the very necessary thing to do and with time in learning, we can have all it takes to succeed well. Forex traders should make out time to manage their risk and ensure they can practice good in this business to seek good trading often.

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    Rookie Lyon's Avatar
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    Quote Originally Posted by Tonycee View Post
    Effective management is one of the best ways of trading forex and this is what will really give us all chance to protect our capital so well in forex. As a trader, making the right decision to plan on this trade is the very necessary thing to do and with time in learning, we can have all it takes to succeed well. Forex traders should make out time to manage their risk and ensure they can practice good in this business to seek good trading often.
    It is one thing to have a good trading strategy and then another thing to be able to manage your account, because when you can't manage your trading account, that becomes a problem, that would make you even more losses. The strategy concept of trading wouldn't work in as much as you don't have a good financial management discipline.

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    Nothing is going to work when the trader don't have the good perceptive of making use of risk management which is the ability to managing the money the actual way, there is no fast success in the market but when the trader knows how to manage their trades then that is when we can see the effective in positive way of our trading strategy. The effective of risk management can be seen on the demo account.

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