Investment risk management. Do you know how?
Risk management is one of the most important steps for any trader or investor. A lot of events that directly affect the markets and the global economy can happen out of the blue. For example, in the first three months of 2020 alone the markets have had to deal with geopolitical issues ranging from Brexit, U.S. elections (primaries), an oil price war, to a global health pandemic that has triggered a global recession. These events present greater challenges for investors and have made markets more volatile than ever.
Part of a trader’s success is a winning strategy. But even more essential is managing and controlling risk. You may have mastered the markets and can easily predict how one factor affects the other. For example, how the current oil price war between Russia and Saudi Arabia could lead to dropping oil prices, which eventually leads to lower fuel prices and in turn lower tickets and more passenger revenue for airlines. But risk management comes first.
Smart, experienced or sophisticated investors will have different views on whether the current market, volatile as it is, presents an opportunity to buy or sell stocks certain stocks, for example. Some are busy buying sectors and companies that have declined while others are selling those sectors. Yet others are standing on the sidelines. All these investors are informed by their plans and strategies, or no strategy at all.
Risk management means being prepared, defining your risk profile and building a trading plan and sticking to it. The plan can be revised from time to time in case of unexpected volatility as we are seeing with the COVID-19, the oil price war, or the recent gold price rally.
The trading plan or a diary is a crucial working document in which a trader shall note all his trades, commissions, limit and stop order levels, profit and loss. While a plan won’t guarantee you’ll make a profit, it helps to stay focused and realistically review your trading strategy in perspective. It also helps to see your risk management flaws and re-adjust before you make a large mistake that could cause a lot of stress and losses.
A trading plan or diary is even more necessary for the average trader who doesn’t have a professional manage or programme to help them monitor activity and risk. Intentionally keeping a trading journal will allow you to see emerging patterns, clearly see which stock, ETFs, industries or sectors you trade well and which ones you simply can’t get a handle on. This is vital information that feeds into your trading methodology.
A trading methodology is central to any trading plan. During times of volatility, like now, your methodology may start with some self-analysis, asking key questions like – what is my experience level? What kind of trader am I? Am I a risk-taker? Am I mentally ready?
Part of a trading methodology is choosing the markets to trade. Are these markets open during this time of lockdown and economic uncertainty? How much equity do you plan to place in a market, a sector, or a product? In short, what proportion of your capital are you prepared to put on the line on any one trade? And what is your risk tolerance considering all eventualities? Considering these questions in a methodology helps in deciding how to structure and balance your portfolio, of which there are many options.
Balancing your portfolio
There are several ways to invest, from lifecycle to index funds, or just buying stocks and other financial products as you customize your portfolio. The most important thing is to ensure that your portfolio is balanced over time while still mindful of the risks. One way to adjust risks in your portfolio is to add alternative investments.
Alternative investments represent an alternative way for investors to diversify their portfolios and help mitigate volatility in different situations. Alternative Investments may help you smooth out your overall returns and can also help you balance your assets during market selloffs for example. Investors can access alternative investments by defining several strategies, the most common of which include Private Equity strategy, Hedge Funds, and Managed Futures.
A good risk management strategy will help a trader factor in all eventualities, for example, by deciding on how to balance your portfolio with different products, different markets, and when to trade or not to trade a product or a particular market.
Lots of questions, right? These are key questions to consider when designing your plan, trading strategy, and risk management framework. Having a risk-based-trade-methodology allows you to easily trade, by finding trades that work for you, and avoiding risky ones. It’s a calculated plan.
Monitoring your positions – the need for a single, multifaceted platform
As important as having a trading plan, trading methodology and risk management plan, is having a trading platform that allows you to customize, and monitor all your positions across different markets, sectors, and products, in real-time, that allows you to view your profit and loss and manage your stop and limit orders – all from one place. Our market designed Atlas Trader platform is your trading companion.
We designed the Atlas Trader platform, as a solution for traders who want to get access to different tools from fundamental to technical analysis on multiple financial products, e.g. stocks, options, and futures using real-time information with just a single account.
With Atlas Trader, you can double-check your exposure on asset classes and around the world with Atlas’ Risk Navigator. This feature is a forecast system based on historical market activity and can help you minimize your risk when trading on margin or with client funds.
What’s more, you can trade multiple assets in multiple markets - through America, Europe, and Asia on a streamlined, modern, and tech-savvy platform. Users also take full advantage of over 30 advanced Algorithms and benefit from extremely low commissions while making large orders.
As an execution-only broker Investors Europe provides a range of platforms to meet your investment needs. You choose your investments and markets - we provide the platforms for accessing and executing your trades in real-time. Explore our wide selection of platforms, benefits offered, markets and products tradeable here.
Our team of experts is waiting to discuss your trading needs and help you find a solution that fits them. Contact us at +230 54490369 or firstname.lastname@example.org.