Money management: discipline is the name of the investment game

Money management: discipline is the name of the investment game

The key to effective money management is discipline. That may sound overly simplistic, but in all walks of life where the aim of the game is to increase capital, the need to reduce unnecessary financial waste will no doubt be a pivotal part of the process. And this requires a great deal of discipline.

For those accustomed to living the expensive high life, it can be very difficult curbing expenditure and adapting to a new, simpler lifestyle. Similarly, those who like to gamble on football or the horses have to adopt a very disciplined approach to their hobby or they could face financial ruin.

Furthermore, games such as poker – which has enjoyed a resurgence in popularity since the advent of the internet era with many millions of people now betting for pennies, pounds or hundreds of pounds on the countless online casinos – can be highly addictive and hence very costly for those with little discipline.

Poker is much maligned as a game of pure luck, but the top poker players succeed on strategy, using carefully calculated odds and a disciplined betting approach: a player that thinks going ‘all in’ is a clever move is unlikely to succeed for long in poker, even if they enjoy some early success.

The same applies to the world of investment too, where those who enjoy the most success on the stock exchange are those who are guided by pre-established rules which form the basis of all trades. Whilst gut instinct can come in handy, emotions or arbitrary whims have no part to play in investments.

For example, contracts for difference (CFDs) have enjoyed a surge in popularity in the private trading fraternity, due in part to the flexibility it offers traders – and the leverage. CFDs are particularly good for short-term, speculative trades whereby exposure is increased within a trade but the actual investment is minimised.

However, whilst there is always an element of risk in any trade, don’t think for a second that Contracts for Difference trading is blind guesswork. Any speculation should be based on sound insight from analysts and economists.

Similar to poker or other games of risk, discipline and money management should underpin any CFD trade.

The first rule of thumb is this: don’t get greedy and lose all your money in one foolish trade. The lure of cash can cause investors to see nothing but pound, dollar or euro signs, meaning rationality goes out the window, so the very least you should do is make sure you survive to trade on another day with a clear head.

Furthermore, you should only ever invest a sum of money you are prepared to lose in any one trade. This can vary from person to person, but a guideline figure is around 2% of your total account balance in any one investment. You’ll also need to learn how to determine the size of particular trade; otherwise the upper limit of what you’re willing to risk is meaningless.

So, you can see there are rules to follow with money-making opportunities involving an element of risk. The rules won’t eliminate the risk completely, but they will ensure your chances of succeeding are maximised.

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