Edge-n. 5. 'A margin of superiority; an advantage' ~ American Heritage Dictionary

Trading futures, by its very nature, encourages the pursuit of an edge. Individual traders usually try
to obtain this advantage by addressing three major issues: timing, transaction costs, and information access - we believe they are missing the point.

Professional traders and money managers address one other crucial issue before they even
enter a trade: "What if I am wrong?"

This is risk management. By starting with it, they have already prepared themselves for a loss. Their
use of risk management up front helps them avoid the emotionally and financially devastating effects
of catastrophic losses - this is the professional trader's real edge.

While timing is the basis of all trading systems, it is never infallible. Even the advertising for many
trading systems express their effectiveness in percentage terms. These percentages acknowledge the
fact that systems will be wrong. If they can be wrong, they can be very wrong. Risk management allows
a system to be very wrong without necessarily wiping out your trading account.

Many traders have also attempted to shrink transaction costs by obtaining direct floor access, exploiting the speed of the Internet and electronic order entry, and paring commission rates to the absolute minimum. While these efforts do have an effect on a trading account's performance, they are strictly limited and tend to be very small. Every trade has implied transaction costs in addition to their commissions and fees. Losses are one of those costs. As the largest portion of transaction costs, they deserve the most attention. Risk management focuses a trader's efforts on minimizing these costs.

Individual traders have also tried to get 'the edge' with live audio or streaming quotes, real-time news services, and other information and data sources. These are tools used to make trading decisions.
Trading decisions are informed opinions about the market's direction. Emotions can often influence
these opinions. By limiting losses, risk management can prevent trade decisions from being negatively influenced by irrational emotions.

So how can you possibly get 'the edge' in the futures markets, where the cards often
seem to be stacked against you?

We feel that professional traders and money managers approach it best. They make risk management
the centerpiece of their trading program and recognize its impact on their performance. We do not underestimate the importance of timing, transaction costs and access to information. However, you
cannot consistently control these factors.

Risk management is the one thing you can control:

• You control which markets you trade.
  
  
• You control how many contracts you trade.
  
  
• You control where to set your stop loss.

These are all important elements of risk or money management. You must be your own money manager.