Getting Started in Commodities

Chapter 9

Money Management: Staying in the Game

Veteran commodity traders commonly assert that proper money management represents the keys to the kingdom. But what does this statement mean, and what exactly is money management? These are critical questions to be answered, not only for veteran traders but especially for novice traders who are just getting started in commodities trading. Before these questions can be answered, however, it is important to first have a full understanding of exactly how commodity futures are traded and the risks involved and potential rewards that are available. Yet, although we have already discussed many of the risks and rewards of commodity futures, the issue of money management should come first. What is money management? In its most succinct definition, money management involves deploying trading capital in a manner that minimizes risk as much as possible, while simultaneously affording maximum profit potential.

money management

the act of deploying trading capital in a manner that minimizes as much as possible the risks that you are exposed to, while simultaneously affording you maximum profit potential.

Since most new commodity traders originally start out trading in the stock market, it is important to understand the differences in the mechanics involved in trading stocks versus commodities and the inherent risks involved. The best way to gain ...