10 ways of Managing Money in Securities Trading
Investors/traders cannot control volatility at market place but they can certainly manage their money by adopting effective money management techniques/tools in absence of which there is always possibility of losing part or whole invested money. This in simpler terms is called ‘risk management’. It starts with identifying the risks involved and taking preventive measures to minimize its likely adverse impact on investment portfolio.
1. Making Trend a Friend: Approximately 60% of individual stock price movement is attributed to the prevailing trend of the stock market. Stock prices rise and fall with the market. Hence, being on the right side of the trend is very much needed.
2. Diversified Portfolio: Owning stocks of individual company can offer greater returns at a time, it also expose to greater risk in unforeseen circumstances that can affect the company. Hence, diversifying holdings across the industries or various asset classes is one of the best ways to avoid risk associated with holding individual stocks.
3. Follow Stop Loss discipline: Stop loss discipline suggests the fact that every buy or sell position should be backed by a simultaneous stop loss which is placed below buying price and above selling price. Traders should never ever have naked position which exposes to huge risk.
4. Covered Call Option: Under this strategy, OTM strike price of stocks with moderate bullish outlook can be shorted to earn premium without disturbing the existing holdings.
5. Protective Put Options: Under this strategy, Put options are bought to protect holdings against unexpected fall in prices. Thus, it provides for security in case long positions fall in price.
6. Invest surplus money: One should invest only surplus money which he/she does not need in near future in case of financial emergencies.
7. Sticking to the fundamentals of the company: Market becomes very volatile at a time which shakes the confidence of investors. Hence, it is always recommended to stick to fundamentally strong stocks and stay invested for a longer period for high yield on the invested money.
8. Avoid Overtrading: Disciplined trading not only helps manage money but ensures respectable profit generated from trading. One should not indulge in over trading which leads to losing profit along with principal amount.
9. Strategize: Trade with strategies designed in advance based on understanding of fundamental and technical facts of the market.
10. Heed expert advice: It is always recommended to take expert advice and not go by tips provided by other sources.