Thoughts on Risk Management

[vijayvaliya]

I think both my threads were almost dead, as i see no participation from anybody in this.

But the ones who participated, are really well-known names of this forum, in terms of their contribution to this forum, and i think it is time for reactivation of threads.

" Discuss risk and money management techniques and methods to protect your trading capital. " is caption of this section. I was trying to talk about risk management techniques.

A few more elobarations i wish to make now, to see more light into the topic.

One such thing comes to my mind, the role of economic factors in risk management. By economic factors i mean the macro-economic inputs that is a must for risk management processes.

i consider the GDP, a sufficient indicator of the growth for the world economy or a country's economy.

secondly money supply in the financial system,

interest rates

I wish others to take forward this discussion.

 

[olivia751]

Hello,

I got different type of thoughts about the risk management. Thanks for the post. This is a little bit helpful for me.


Regards,
Olivia

 

[supremo]

Nice discussion. For me, money and risk management should be half of the trading plan

 

[vijayvaliya]

dear supremo,

what is the other half? also I am afraid that i will soon end up as a trader or trading advisor :lol:

 

[columbus]

With any kind of instrument, trading is like a 20-20 cricket match.
One poor over is enough to tilt the match.

 

[vijayvaliya]

Friends,

Risk is inherent to any sphere of life. Any activity we carry out in life has overt or covert risks in it. May be some people knowingly take the risk, and some unknowingly. The subject Risk Management is all about taking the risks in a measured way.

 

[dineshkummar]

hi,
Below link will satisfies your needs.

http://www.traderji.com/risk-money-management/38563-porfolio-management-v-1-1-a.html

Regards,

Dinesh

 

[vijayvaliya]

Friends,

Please suggest your answers for the following problem on risk Management

Funds to Manage - 40 Crs.
Expected return - 20% (annualised - Post tax)
Fund Managers commission (2%)
Risk appetite - low
Performance evaluation frequency - Monthly
VAR - 1% on (daily MTM)

 

[linkon7]

Friends,

Please suggest your answers for the following problem on risk Management

Funds to Manage - 40 Crs.
Expected return - 20% (annualised - Post tax)
Fund Managers commission (2%)
Risk appetite - low
Performance evaluation frequency - Monthly
VAR - 1% on (daily MTM)

Since the risk appetite is low, the expected return is also low. 20% post tax and post commission, gives a tgt of 33% per year, which is very reasonable.

Options are liquid only in nifty and a hand picked few stocks and relatively safe trades are possible only if options are used to build / safeguard positions. At least 40% of the AUM should remain in cash, to implement the exit strategy, should it be required. That means the tgt per qtr of 9% on the balance 60% of the capital which is exposed to the market.

This is assuming, 2% commission is on the AUM and profit is taken off the table periodically.

Its a matter of formulating the right trading strategy, with clear exit points, action required for every possible what if scenario and execution of the trading plan. :thumb:

 

[vijayvaliya]

Since the risk appetite is low, the expected return is also low. 20% post tax and post commission, gives a tgt of 33% per year, which is very reasonable.

Options are liquid only in nifty and a hand picked few stocks and relatively safe trades are possible only if options are used to build / safeguard positions. At least 40% of the AUM should remain in cash, to implement the exit strategy, should it be required. That means the tgt per qtr of 9% on the balance 60% of the capital which is exposed to the market.

This is assuming, 2% commission is on the AUM and profit is taken off the table periodically.

Its a matter of formulating the right trading strategy, with clear exit points, action required for every possible what if scenario and execution of the trading plan. :thumb:

Thanks for quick continuation on the discussion.

Please let me know whether I understand your solution correctly


I interpret your solution as follows


1) I must get into a set of instruments/ trades that are capable of generating at least 55% return annually (meeting with monthly/quarterly targets).
2) 2% commission is on the expense side of the fund . so it is deducted directly from pre-tax profits.that makes target on pre-tax profit (statement 1 to around 56.12% annually (Am i right?)
3) Trading strategy involves which type of instruments? only equity and derivatives? (or is it money makes money always :lol
4) Dont you think this will violate the condition (Risk appetite - low) in the problem?