Money management and balance: Gauge your capacity status

Mar 12, 2023

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The money management and trading investment assessment is a milestone test to prove your knowledge about financial management, risk, and investment decisions. Traders of the global market (beginners or professionals) must understand how money management comes to be and what role it plays in their investment decisions.

The following factors are considered to have the most effect on a trader's capital up until the point of liquidation, except

Technical analysis

Technical analysis does not have a direct consequence on a trader's capital.

Risk/reward ratio

The risk-reward ratio can make or mar an investment.

Trading strategy

The strategy deployed in trading is essential when planning to open a market position.

None of the above

None of the above options do not represent the factors that must be excluded when considering liquidation.

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What is the best way to alleviate a possible financial disaster on your portfolio when the market shows increased volatility?

Trade with a stop loss

A stop loss will ensure that you do not lose more than you bear from a single trade.

Increase your leverage

Trading the global market with more leverage exposes your portfolio to a greater danger of bankruptcy.

Exit the market based on emotions

Getting out of the market should not, at any point in time, be an emotional action but one that is based on strategy.

Open a counterposition

Opening a new position to counter the initial one poses a threat to your portfolio.

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The global market has varying assets with a diverse degree of volatility. What is your ultimate investment rule when opening a position in a highly unstable market?

Hoard the capital to avoid the loss

Keeping your capital is not a wise investment decision to make. You only gain some when you put some out.

The right entry/exit strategy

A volatile market needs careful investment decisions, such as an effective entry/exit strategy to avoid portfolio exposure.

Increase your risk level

By increasing the risk level of a trade, your capital is exposed to a 50/50 likelihood of success or disaster.

Reinvest a tenth part of your capital

This will only result in compounded loss.

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What is the best money management rule for a $500 investment?

Setting a wide stop loss

When dealing with small capital as $500, the best money management and investment rule is to tighten the stop loss as much as you possibly can.

Use small lot sizes like 0.01 and 0.02

Small lot sizes contribute positively to the outcome of a trade. The smaller the trading size, the less likely you will end up with a liquidated account.

Split the capital and invest in several stocks

A $500 investment is too small to split into other global stocks. A better option is to utilize it on a high-potential asset strategically.

Trade a volatile stock with it

To manage your trading capital, you should avoid volatile stocks.

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What best investment advice would you give an amateur trader fascinated with making the most of the global market?

Monitor your trades

Trade monitoring is good advice, but there are better options.

Trade multiple assets

Multiple trades at the same time will foster financial disaster.

Know your risk tolerance level

A vital rule of engagement when investing is to know your risk tolerance. This will guide you to maintain your finances properly.

Put out all your funds on a sure trading signal

A trading signal doesn't guarantee trading success.

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In addition to a stellar trading strategy, what other trading ingredients can add security to your investment capital?

Keeping emergency funds

Emergency funds are nowhere close to securing your investment capital.

Lock your capital away

Having a fixed deposit account negates the purpose of the investment.

Strategize investment plan

It is imperative to always trade with a financial strategy that entails how much you spend on each trade.

None of the above

Doing none of the above does not secure your investment capital.

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A global forecast announces the possible rise in stock "A"; as a cautious and intelligent trader, what is the best investment approach to make on stock "A".

Wait for other traders to make the first move

Waiting for other traders to make the first move may be the wrong timing.

Investigate stock A for better investment opportunities

The right thing to do when global news backs up an asset is to find out how you can maximize the opportunity.

Ask around for investment help

The best investment help comes from personal research on the asset involved.

Disregard the forecast

Disregarding a global forecast is a poor investment practice.

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What measures should be taken to maximize and supplement a low-capital investment in the long run?

Find trades that have a solid risk/reward ratio