Risk management is undoubtedly a pillar to operate in the financial markets, being able to make the difference between success or failure and, even so, being often forgotten by those who do not have much experience in the field. Now, risk management may involve several rules and knowledge of different levels, which must be coupled to the operations performed by a trader to positively influence the trader’s results. However, here we will focus on a basic and key concept that, without much effort, anyone can take into account to improve their risk management.
To begin with, and although a priori it may seem trivial, we must understand the meaning of risk as the possibility that an outcome differs from what is expected. The greater the possibility of this occurring, the greater the risk. Now, risk can be quantified in various ways for investment assets, such as funds and portfolios, taking into account historical performance, profit and loss ratios and so on. However, this idea of risk can be extrapolated to the qualitative field and naturalized to categorize the permissiveness or aversion to risk that a person has by means of the concept of risk profile.
To begin with, and although a priori it may seem trivial, we must understand the meaning of risk as the possibility that an outcome differs from what is expected. The greater the possibility of this occurring, the greater the risk. Now, risk can be quantified in various ways for investment assets, such as funds and portfolios, taking into account historical performance, profit and loss ratios and so on. However, this idea of risk can be extrapolated to the qualitative field and naturalized to categorize the permissiveness or aversion to risk that a person has by means of the concept of risk profile.
However, traders, as a general rule, have a moderately high aversion to risk as they constantly expose their capital, which further highlights the importance of keeping risk under control as a percentage of their total account. This is where Swiset becomes a great ally, allowing to monitor this risk and, thanks to the trading plan, helping to keep it tolerable, while reducing or avoiding emotional or irrational decisions.
