# Tips on Money Management

#### Tarun_Shetty

##### New Member
Money management is a strategy for increasing or decreasing the position size to limit risk while achieving the greatest growth possible from a trading account. There are good and bad ways of implementing money management, and the right way focuses on both the risk and reward factors on your account. It allows you to leverage the account while balancing risk. Money management can be used when trading any market as it is focused on one thing alone, and that is account performance.

Martingale vs. Anti-Martingale Strategies
Martingale methods increase the position size with losses. As the account is in a losing streak the trader will double the position size in order to re-coop all the losses and make a little profit.
Anti-martingale methods are the opposite. The position size increases with wins and decreases with losses.

What Money Management is NOT
Money management is NOT risk management.
Money management does NOT position sizing.

Money management is important because it will give you a strict path to follow in order to reach your goals as a trader. The goal as an independent trader should be to make as much money as possible while making sure you don’t blow out your account.

1. The 2% Rule Method
The 2% Rule is an anti-martingale money management method that is based on your account size.
Risk per Trade = Account Balance X 2%

2. Fixed Fractional Method
One fixed fractional method commonly used is to trade 1 contract for each X amount of dollars in the account. X can be set to be a large or small number.
X = Rs 10,000; If Account Balance = Rs 20,000, then Position Size = 2 contract

3. Optimal f Method
This method was developed by Ralph Vince, and it is a mathematical model to determine f which stands for fraction. The method solves for the optimum fraction from a given set of trades that will produce more returns than any other fraction.

4. Secure f Method
Secure f is a safer version of Optimal f.
The risks have become manageable but at the expense of geometric growth.

5. Fixed Ratio Method
The Fixed Ratio Money Management Method was developed by Ryan Jones and presented in “The Trading Game”. It is a very different approach to money management.

#### DreamDeal

##### Member
Money management is a strategy for increasing or decreasing the position size to limit risk while achieving the greatest growth possible from a trading account. There are good and bad ways of implementing money management, and the right way focuses on both the risk and reward factors on your account. It allows you to leverage the account while balancing risk. Money management can be used when trading any market as it is focused on one thing alone, and that is account performance.

Martingale vs. Anti-Martingale Strategies
Martingale methods increase the position size with losses. As the account is in a losing streak the trader will double the position size in order to re-coop all the losses and make a little profit.
Anti-martingale methods are the opposite. The position size increases with wins and decreases with losses.

What Money Management is NOT
Money management is NOT risk management.
Money management does NOT position sizing.

Money management is important because it will give you a strict path to follow in order to reach your goals as a trader. The goal as an independent trader should be to make as much money as possible while making sure you don’t blow out your account.

1. The 2% Rule Method
The 2% Rule is an anti-martingale money management method that is based on your account size.
Risk per Trade = Account Balance X 2%

2. Fixed Fractional Method
One fixed fractional method commonly used is to trade 1 contract for each X amount of dollars in the account. X can be set to be a large or small number.
X = Rs 10,000; If Account Balance = Rs 20,000, then Position Size = 2 contract

3. Optimal f Method
This method was developed by Ralph Vince, and it is a mathematical model to determine f which stands for fraction. The method solves for the optimum fraction from a given set of trades that will produce more returns than any other fraction.

4. Secure f Method
Secure f is a safer version of Optimal f.
The risks have become manageable but at the expense of geometric growth.

5. Fixed Ratio Method
The Fixed Ratio Money Management Method was developed by Ryan Jones and presented in “The Trading Game”. It is a very different approach to money management.
View attachment 45316
Thanks for sharing such useful information.

##### Member
These are really great money management tips. Thanks for sharing.

#### kuntigrewal

##### New Member
@ Brackwom I completely agree with you that the post is quite informative with some valuable information. Yes, there should be a focus for creating a practical monthly budget as well.

#### aayushpatni

##### New Member
Completely agree with this. But coming to the other side, its only about stock trading part. But actually money management covers each and every aspect. When you have put your money into stock market trading, you have already thought that this amount will be at risk and can wipe out any time with the wrong trade positions. Coming a step backward, you should take out 20-25% of the profit every month or quarterly. So, it will always be with you as liquidity emergency requirement. Although its not for everyone. If someone has an emergency cash reserve of extremely good amount, then there might be no need of taking out extra surplus for saving.

#### MahindraSatrujit

##### New Member
Completely agree with this. But coming to the other side, its only about stock trading part. But actually money management covers each and every aspect. When you have put your money into stock market trading, you have already thought that this amount will be at risk and can wipe out any time with the wrong trade positions. Coming a step backward, you should take out 20-25% of the profit every month or quarterly. So, it will always be with you as liquidity emergency requirement. Although its not for everyone. If someone has an emergency cash reserve of extremely good amount, then there might be no need of taking out extra surplus for saving.
Thanks for sharing your views! I totally agree with the 20-25% profit part. Some don’t have enough money in their emergency cash reverse.

#### Jai Kapoor

##### New Member
Money management is an integral part of trading. You must be using your trading capital wisely in order to become a successful trader. Managing your trading capital is a part of managing the risk.

#### Divya Roychaudhuri

##### New Member
These are great tips! It is very important that traders set a budget at the start, so they don’t end up losing as they move forward and grow. A good organised plan will maintain the focus and make sure the investors get what they want down the line.