Financial Management in any Market is what necessary to improve Trading accuracy, Diversification, Research, Risk and Maintaining money.
Financial Management is the most important factor after Selecting stocks to Buy and doing Market Analysis. Trading is not just Buying and Selling of Instruments, its the detail and discipline study one much do before entering in any Financial Market. Many novice Traders skips it and it result in holding instruments improper way and losing in the end. There are many Financial Management tools Professional trader keeps eye on. The most important of the few is Portfolio management, Money Management and Risk Management.
Portfolio management is one of the Primary Financial Management tool used by Professional Traders. It is a collection of investments held by any Individual, Fund Manager or any Financial institution In Portfolio one can see their Holdings of various types of Investment like Stocks, Mutual funds and other Securities, etc. Many different types of securities can be used to build a diversified portfolio. One can also design their Portfolio by allocating different types of Securities.
There are many Free to use website which allows you to maintain Portfolio and research particular Stocks or any other securities. Eg like. Moneycontrol, Rediff Money, Etc. You just need to add Share name, Bought price, Quantity, Date, it will show in a perfectly Graphical way, which is easy to know our Holding in Graph manner. This helps in maintaining Money Management and Risk Management in one place.
Money management is a term used in the trading community for any Individual, Fund Manager, Institution or Investment Company. It involves deciding how much quantity position to take on a single trade entry, It is the way you allocate funds across the portfolio of different Securities, instruments and Analysing strategies. In Financial Management managing money is must exercise before taking any entry in trades, it’s just a pure Maths, like how much capital you have, how much capital you have to use for this particular trade, how much capital will be left for other future trades, etc. It has been developed to reduce the amount that individuals spent whole capital to a single Trade and end up having huge losses because that Particular company share has fallen more than he expected.
The best way to do Money Management is by dividing Trading Capital into several Securities and different type of Investments. Like eg. 20% of Equity, 20% in Commodity (Gold, Silver, etc), 20% in fixed deposit and 40% in Life Insurance, Pension Plans and Medical Insurance with Cash Back returns, etc. A percentage can be different from person to person how he is managing his Money, its all depend on his Skills and Risks.
Doing Risk Management is Mandatory after Money management. Maintaining Portfolio require great Skill, but a wise Individual, Trader or Fund manager have to calculate and Analyse risk he is Investing in advance. Every Market Investment has Market risks except Fixed deposits and Insurance. Individual deals with the question of how much risk he takes on Particular Investment by taking precautionary steps to reduce risk. The decision maker should take in situations where Profit are more than Losses as proper Money management helps reduce risk. If you fail to have proper risk management, you’ll never be able to save money and you’ll never be able to hold onto your investments.
Your spending habits should not force you to invade and destroy your savings and investments. If you fail much time, you will never Invest in future. One must only Invest if he is ready to lose that part of the money as Risk is involved. Invest only if you’re left with some savings after your Important spending like paying Household bills, Living costs, Travel cost, Some money for Emergencies, etc. Following proper Money Management and Risk Management will have stress free Investments, Good Liquidity in Profit returns and Very much lower risk.