American Consolidebt, Money Management Guide

Posted By: Consolidebt.Us
Author: Anna Coulling
Why is money management so important? Put simply it is the ability to determine your trade size in relation to your overall portfolio position, and takes into account open positions and cash in hand.

Imagine you are just starting out and have your cash ready and waiting, and let us suppose it’s £10,000. How much are you going to put on your first trade 5%, 10%, 20%, or all of it? Do you consult your partner, your friends, or just see how you feel when you place the trade. Many traders, in fact probably most, have no idea about trade size, how to work it out logically, or even whether it is important. The problem of course (as ever) is that it is rather a dull subject, and one which requires discipline and attention to detail

One other point, before we move on, is that everything is based on percentages, for the simple reason that they can be applied to any amount of money irrespectively. If you lose 100% of your money you are out of the game. If you lose £100, how much does this represent of your starting capital? From now on we work in percentages which can be applied to any amount in any currency.

Let us start with a very simple example, and assume that you have never traded before. You therefore have 100% trading capital. If we are prepared to risk 50% of our capital per trade, how many trades could we get wrong before we were out of the game? The answer of course is two, which does not seem very sensible, unless you are a gambler or simply trading for the thrill of losing money! So, how much should you start with on your first trade? Most articles written on the subject suggest that this is 2%. I suggest that you start with a maximum of 1%. This means that you can get 100 trades wrong before you are out of the game. I know this seems unlikely but anything can happen, and bear in mind that even with the best trading system in the world you are probably not going to do better than 60% success rate, or 6 in 10 trades going into profit.

OK, so now we have established that to start we are only going to risk a maximum of 1% of our trading capital on each trade. The next question is how much of our trading capital do we want to risk in total at any one time? Imagine if you had converted all your trading capital into open positions on the market and there was a world event which sent prices tumbling. How much of your capital could you afford to lose in one such event and still recover? If we lost 5%, we could recover as this only requires a recovery of 5.2%, similarly a 10% loss only requires a recovery of 11.1%. Both of these are achievable but anything more is going to be difficult. Some commentators suggest risking between 6% and 15% of our trading capital at any one time. Again, I am conservative and I suggest that you start with a maximum of 10%. This means that if the worst happens and there is a collapse in prices the most you would lose is 10% of your working capital.

Please note that both the figures suggested are maximum percentages. If you want to keep it to less this is fine, as long as you remember where the maximum level is set. The key to success is combining your money management with good risk management tools, the simplest of which is the stop loss. Using good money management with simple risk management tools will preserve your capital and keep you in the game, to live another day. Ignore them, and you will lose all your money – very quickly.

Author: Will Win
Are you ready to lose all of your money? Of course not. And that’s why money management is so important. So, what’s this alien phrase “money management” anyway? In today’s article, I will get you started down the golden road of managing your money and time better for more casino profits.

The Primer

Before you run for the hills, let me calm you. I won’t be going into serious financial detail in this article. The idea is to explain what money management is and to give you some food for thought. Yes, the field of money management goes well beyond the simple stuff that we’ll talk about today, but let’s save that for later.

In layman’s terms, money management simply means keeping track of what you’re doing and what you planned to do at a casino. It’s like when you go to the grocery store with an idea in mind of how much you want to or can spend and perhaps, to some degree, what you want to accomplish while there.

Set Aside Money

Before engaging in any gaming entertainment you should set aside an amount of money for your fun. This is the maximum amount of money you’re willing to spend. If the moment comes when it’s gone, you’re done.

When you set aside money like this, it’s traditionally called a bankroll. Ideally, your bankroll should be for just gambling and not other activities, such as eating, seeing movies, and so forth.

Betting Within Limits

Now that you have your bankroll, you can clearly see-at any time-how much money you have to play with. Using this new insight, you can bet appropriately.

If your bankroll is $100, you wouldn’t want to walk up to the Blackjack table and play $25 hands. There’s no hard and fast rule for bet sizing off a bankroll. I think you need to think about how long you want to try and play for. If you had $100 and just wanted to play for 5-10 minutes, then maybe $25 hands is fine.

For the typical player that’s looking for up to a couple hours of fun, try to divide your bankroll by 20 for table games. So, if you have a $100 bankroll, bet $5 per hand. As your bankroll increases, bet more if you wish.

The Overall Goal

Managing your money in this fashion will help you enjoy your experience more and you’ll be more fiscally responsible. Most people who walk away big losers do so because they didn’t know when to stop.

By setting your bankroll ahead of time, you know when to stop. And if you want to go further, you can initiate a stop loss on your money. Confused by this? We’ll go deeper into money management in other articles.

Just remember this. Every professional gambler in the world knows about money management and uses it to some degree. Even if you only gamble once in a blue moon, it’s good for you to at least know the basics.