How to keep your risks to a minimum in forex trade ?
Risk Management is basically an approach to manage uncertainty which might be linked to a threat through a series of human activities like risk strategies, management, its management and even migration of risk.
The strategies basically consist of transference of risk to a different party, avoiding it, bringing down the ill effects of risks, and receiving the consequences and results of a given risk. Some of the traditional risk managements are highlighted on the risks arising from legal or physical causes (eg: accidents, lawsuits, natural disasters, fires etc.). On the other hand Financial Risk Management focuses upon the risks that can easily be managed with the help of traded financial instruments.
The basic objective of Risk Management is the lower the no. of various risks linked to a domain selected beforehand and bring them to such a level that may be accepted by the society. It may also refer to the various threats caused by technology, humans, environment, politics and organizations. On the obverse side it includes all the basic means available to humans or rather for a entity of risk management (organization, staff, person).
The video below gives an excellent step by step risk management execution for a forex newbie using real time screenshots:
In case of ideal Risk Management, a process based on prioritization is followed in which the risks with maximum probability are dealt first then the ones with the second highest probability and the process continues in the same manner. The process is very difficult in actuality. Sometimes its difficult to handle and strike the right balance between a risk with high probability but low loss and another with low probability and high loss.
In Intangible Risk Management there might be a risk with almost 100% probability but even then it is not accepted by the company because there is lack in the ability of identification. Eg: when insufficient information is used for a particular solution, the ‘knowledge’ risk materializes. Risks related to Relationship also start appearing when the collaboration does not prove to be effective. The issues relating to process-engagement risk may also arise when the applied operational procedures are ineffective. Such risks are instrumental in reducing the productivity of workers, profitability, reputation, quality, service and brand value. Intangible Risk Management permits risk management to make instant value from the reduction and identification of risks that directly reduce productivity.
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