What Makes Risk Management Different From Money Management

There's a clear distinction between cash management and risk management, but the subtleties tend to get lost in the shuffle. When I ask new dealers what their risk management software  are, they tell me" stops"; when I ask them what their cash management plans are, they tell me “stops".

What Makes Risk Management Different From Money Management

The best way to clearly delineate cash management from risk management is to consider it this way: Money management is the way you handle the funds you have in your account.

That is why we discussed things like earning interest on your account, how much you'd hazard if you took on a trade, what your risk-reward ratios were, and which sort of markets fit your individual volatility in addition to the funds in your account.

Risk management has to do with one thing and something only-how to shield yourself from the danger of loss. So while stops might be a sort of risk management instrument, they're definitely not a cash management tool.

We know we'll eliminate money trading-in fact, it's guaranteed that we will have losing trades. The purpose is to use risk management methods that will help us minimize our losses so we can stick around long enough to allow the winning trades manage themselves.

Do Not Expect a Miracle

If there's a holy grail of trading, I have not found it yet. The approaches presented here are intended to do three things: make you look like a hedger to the trades, cause you to believe like hedger, and force you to behave like a hedger. All the while you're still speculating and have the most to gain if you do succeed. 

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