Welcome, please play the video to get started:
What is risk?
The general definition of risk is:
However, when it comes to trading risk shouldn’t be thought of just as a negative – when traders trade they are exposing themselves to certain risks with the objective of making money from it – you cannot trade without risk. The key is to understand each risk, how to manage them and ultimately optimise them in your favour.
Traders cannot avoid risk, it is part of trading, however, traders can control variables like when they trade, trade size, leverage, who they trade with and the amount of money at risk. A trader’s objective is to find trade opportunities where the risk to reward ratio is in their favour. Do this enough and that is a profitable strategy.
There are four principal risks in trading: market, leverage, liquidity and counterparty risk.
We’ll examine each in the following lessons.
- In trading, risk = exposure to losing money.
- However, traders must expose themselves to risk in order to make money.
- A trader’s objective is to manage these risks and to find trade opportunities where risk: reward ratio is in their favour
- There are four principal risks in retail derivatives trading: market, leverage, liquidity and counterparty risk.
