Many traders are trying to enter the markets simply to be able to manage the risk and thus make a profit. While there is always some level of risk present in the markets, experienced traders can basically handle certain types of risk.
There are certainly a number of key ways to mitigate and manage risks when trading in booming markets, as well as when trading CFD assets such as Forex, Indices, Commodities , Stocks and Cryptocurrency Futures , but it is important to note that there is a specific type of risk that will always be present regardless of diversification and risk management strategies. This risk is called diversifiable risk, or unsystematic risk, which we will discuss in-depth later.
What exactly is risk management?
First, risk management is best characterized as the process of identifying, analysing and accepting or mitigating the inherent risks of online trading.Some of the highest performing traders master the risk management technique to control what is actually controllable in the markets, as it is never known which way it might sway.
To explain briefly, there are two types of risks: unsystematic (also known as diversifiable or firm-specific risk), and systemic (also known as non-diversifiable, or market-related risk) risk. By adding these two types of risks together, a trader may get the total risk involved in trading. It is key to note that only one of these types of risk can be managed with further strategic action.
Unsystematic Risk + Systematic Risk = Total Risk
Can I control my risk exposure in the markets?
Scientifically proven, diversification can fundamentally decrease the level of one's risk in their given portfolio. Therefore, to answer the previous question ‘is it actually possible to manage your risk in markets?’ - it is possible but only with the proper technique and understanding of diversification.
Going back to the heart of things, diversification can only mitigate and manage unsystematic risk. Systemic risk will always be prevalent and present when trading in the markets; think of this as the unknown, or unexpected effect of ever-changing economic events.
So, the real question is, are you managing your risk for full optimization through the age-old way of diversification?
Whatever your thoughts on the subject, it is essential to find the right partner who will help you make the most of your strategy. Inceptial is a forex company that aims to strengthen traders like you, giving you the knowledge you need to 'Make it Happen' and build your diversified investment portfolio with unlimited resources within your reach.
Is now the right time for you to take action?
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