Money Management

As a money management refers to a hedging strategy, which aims to control the risk of a securities portfolio by size determination of the individual trading positions.

For example, a stock market investor maintains a securities account in the amount of 1 million euros. In order to limit the downside risk of the positions, it is limited in size to 50,000 euros and distributed so that capital to at least twenty different positions. Exceeds a position due to price increase this predetermined limit, it is partially sold to lie again inside the border.

The determination of the position sizes can also be made depending on their individual risk. Then a lower limit is chosen as risky for less for risky securities. This corresponds to the definition of a maximum, absolute ( amount-related ) risk of loss for each position.

This risk of loss for each position is limited by the definition of a stop- loss order, which in turn can orient to chart specifications or the volatility of the security itself. Varies a security, for example, very strong, the stop-loss threshold must generous chosen and the position size with respect to the maximum absolute risk of loss for each position are reduced. Thus, the risk control for each security position is also an aspect of money management.

Another common money management strategy is the reservation of a certain liquidity reserve.

Most professional investors and traders turn to money management strategies as distinguished from speculators.

With an important point in a Money Management is also the area, not to let the trade risk into account. To achieve positive results on the one hand and on the other side to reach the greatest possible preservation of capital, leads to the realization that only a combination of risk and money management provides the optimal basis.