What is money management?

Money management (MM) is one of the essential parts of successful trading that is also referred to as investment management which is based on the principle of financial planning.

Traders allegedly make mistakes and lose funds even with the most profitable strategies just because of inadequate portfolio management.

What are the basics of money management?

When making a trade, you must understand how much money you can afford to lose. In order to protect funds, while analyzing the market and studying trading strategies, you should stick to the main MM rule:
The trade should not exceed 5% of the investment.

According to Pocket Option trading platform features and based on the experience of professional traders, the minimum suitable amount for money management starts from $50.

Why is it not $10?

It’s simple! With smaller amounts it’s impossible to follow the rules of effective MM.

Let’s consider an example with a $10 deposit. Minimum trade amount on the platform is $1 meaning you risk 10% of the deposit. It is the most common mistake among the beginners. In case of a $50 deposit and minimum trade amount of $1 the risk percentage falls down to acceptable 5%. This way, you have sufficient account balance to recover losses if needed and yield profit.

Money management is far more than just knowing trading strategies because having a strategy is an opportunity to win while being able to manage money is a chance to save and multiply the investment.

You are welcome to leave a comment below if money management helps you in trading and if you are going to follow it’s principles in the future.