Money management is the process of tracking expenditure, investment, budgeting, banking, and tax evaluation of money called investment management.
Money management is a strategic technique for making money yielding the highest interest-output value for the amount spent. Spending money to satisfy the desire (regardless of whether they can be included in the budget) is a natural human phenomenon. The idea of ​​money management techniques has been developed to reduce the amount individuals, corporations and institutions spend on items that do not add significant value to their standard of living, long-term portfolios and assets. Warren Buffett, in one of his documentaries, admonished potential investors to embrace his highly-respected "frugality" ideology. This involves making every financial transaction at a cost:
1. Avoid All Costs That Appeal To Arrogance Or Pompousness 2. always look for the most cost-effective alternative (make a benchmark of small-quality variances, if any) 3. support spending on flowering goods than others 4. sets out the expected benefits of any desired expenditure using the plus/minus/nil canon to the standard value system of life.
These techniques increase the investment and portfolio doubling. There are certain companies also offering services, providing counseling and different models to manage money. It's designed to manage assets and make them grow.
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Trading and investment
Money management is used in investment management and deals with the question of how much risk should be taken by the decision maker in situations where the uncertainty is present. More precisely what percentage or part of the wealth of decision makers should be put into risk to maximize the decision maker's utility function.
Money management provides practical advice among others for gambling and for stock trading as well.
Money management can mean gaining greater control over expenses and incomings, both in personal and business perspective. Greater money management can be achieved by setting budgets and analyzing costs and revenues etc.
In stock trading and futures trading, money management plays an important role in every successful trading system. This is closely related to trading expectations:
"Expectations" which are the average amount you can expect to win or lose per risky dollar. Mathematically:
Expectation = (Probability of winning trading system * Average Win) - (Probability lost trading system * Average Loss)
So for example, even if the trading system has a 60% chance of losing and only 40% wins out of all trades, using a trader's money management can manage a substantially higher average victory than the average loss to produce a profitable trading system. If he sets his winning average of about $ 400 per trade (this can be done using an appropriate exit strategy) and managing/limiting losses to around $ 100 per trade; hope around:
Expectation = (Probability of trading system Wins * Average Wins) - (Probability of loss of trading system * Average loss) Expectancy = (0.4 x 400) - (0.6 x 100) = $ 160 - $ 60 = $ 100 average net income per trade (commissions of course are not included in the calculation).
Therefore, the key to successful money management is to maximize every winning trade and minimize losses (whether you have won or lost a trading system, such as% Loss probability & gt;% Win probability).
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Ethical principles
Ethical or religious principles can be used to determine or guide the way in which money is invested. Christians tend to follow the biblical scriptures. Some religions follow the law of Moses which forbids the filling of flowers. Quaker prohibits involvement in the slave trade and initiates the concept of ethical investment.
See also
- Category: Money manager
References
Further reading
Balsara, Nauzer J. (1992). Money Management Strategies for Futures Traders . Wiley Finance. ISBNÃ, 0-471-52215-5 . Retrieved 2006-10-29 .
Stephen Petrivy, xBinOp.com (2016). 5 Types of Money Management Success in Trade.
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Source of the article : Wikipedia
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