Every sane and experienced entrepreneur and trader knows the importance of money management for growth of a business. Either you are a small trader or owner of a PRO service company in Dubai, you can’t afford to waste your money. It is only possible by making a perfect plan that is logical and easy to execute.
Through money management, traders get an idea about investing on the type of business expected to gain profit in long term, spending only on unavoidable activities and save money for future requirements by avoiding spending on risky services and products. There are certain risk management rules that have been proven to bring success in business and most of successful traders know these rules well.
Money management primarily deals with risks that a trader may face in business and the steps to keep sufficient funds for future requirements in the market. If risk management is done correctly from beginning, then it can surely prove to be a profitable strategy for big and small traders.
In fact, it is almost impossible for any trader to expect getting consistent profit without managing his wealth appropriately. Money management has to be adopted in start of a business venture as losing money due to improper planning and mismanagement can result in complete failure of any trade or business. On most of the occasions, it becomes impossible for traders to recover from initial setback that they suffer in the start. It is especially true for small traders. But even large investment can also be ruined without adopting money management strategy in start of a business.
On most of occasions, new traders tend to spend as much capital as possible in order to gain maximum profit in short time. This policy is especially evident if they achieve profit in the very start. But it is not the policy that will sustain for longer. One has to accept the reality and keep in mind that market situation can change without prior notice.
In order to cope with this situation, one needs additional money that will assist to pass difficult time. One can expect to get out of difficult situation in the presence of some extra capital. This additional capital can only be saved as a result of proper and well defined money management.
The application of money management requires complete understanding of situation and finding ways to manage all types of risks that are expected in near or far future. In initial stage, a trader has to identify risks that he is likely to face in future. Only after that, a comprehensive and appropriate money management strategy is possible to develop.
Experts have developed several kinds of money management methods for traders with the passage of time. The most basic one is the flat risk method. In this type of money management strategy, one tries to achieve appropriate profit by risking a specific portion of his wealth. This flat risk method protects trader from any catastrophic loss and allows him to remain in the market for longer duration.
Another famous method is Kelly Criterion that was developed in the 1950s. It is different from flat risk as it increases capital risk if the chances of success are more. It works according to a proper mathematical formula. Applying any of these money management methods will allow traders gain profit by avoiding unnecessary risks.
About the writer: Mona is working as a content writer in a Dubai-based consultancy firm, Riz& Mona Consultancy since past 6 years. During her career, she has acquired lot of experience in writing for various business and investment niches including trade, finance, taxation, offshore business and others.