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Thoughts on Risk Management

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Risk & Money Management Discuss risk and money management techniques and methods to protect your trading capital.


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  #1  
Old 9th October 2009, 05:34 PM
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Default Thoughts on Risk Management

A lot of told about Risk and Money management in this forum. Is there any kind of insurance option available in securities trading?


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  #2  
Old 9th October 2009, 06:04 PM
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Default Re: Thoughts on Risk Management

Explore options trading.. You will be surprised with the result.
You can be buyer of insurance there.. and if you are smart enough, u can take the role of insurance company and sell insurance.

Happy Trading
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  #3  
Old 11th October 2009, 04:29 PM
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Default Re: Thoughts on Risk Management

Quote:
Originally Posted by vijayvaliya View Post
A lot of told about Risk and Money management in this forum. Is there any kind of insurance option available in securities trading?
Your stoploss is the best insurance available to you....once you put it in the system.....nothing can make you loose more than that...and that turns your fear into confidence and you have taken one step towards winning in this game called "trading".

Happy Trading....

Smart_trade
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  #4  
Old 11th October 2009, 05:09 PM
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Default Re: Thoughts on Risk Management

both my friends responded well to my earlier post.

I just thought of elaborating it further.

I see trading/investing as a business point.

business need to have some capital/ input / process /output / profit.

input in this business is stock-in-trade or positions trader/investor holds

process is his views/knowledge/skills/intuition/learning that makes input to a output of profitable/losing proposition

output is the time+process on the input (every business has it the same way)

profit is the outcome of business, and is dependant on all above

so in the insurance aw10 talking about will cover capital, input, output,profit

but can we insure the process?

To make it more clear--- Micheal Jackson insure his throat for billions of dollars-- but can a trader insure his brain/skills/knowledge?
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Old 11th October 2009, 07:40 PM
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Default Re: Thoughts on Risk Management

Quote:
To make it more clear--- Micheal Jackson insure his throat for billions of dollars-- but can a trader insure his brain/skills/knowledge?
.

If one is ready to pay the premium, then insurance companies will ensure anything.
Celebrities have insurance for their body parts, insurance for heart risk, lung failure etc is very common.. the what differentiates individuals brain.

But if you are looking at ensuring your losses (so that they pay u back when u make losses), then I doubt, any insuarnce company will come forward with that plan. And even if then they will look at your track record, your worst drawdown, frequency of that, systems you use etc.. and draft the small letters in their contract carefully to protect their interest and still sell u insurance and collect premium.

Just my thoughts.
Happy Trading
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  #6  
Old 11th October 2009, 07:47 PM
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Default Re: Thoughts on Risk Management

On different note, when we know that Trading is a Business, then how many of us have backup plan for our laptop/pc, for datafeed, for historical data, for all customised indicators, dashboards that we create in our TA software or trading software ?

It is quite exhaustive topic on its own.. Topic about ensuring continuty of out trading business, which goes far beyond a single trade, or single trading account.

Personally, I still have long way to go in this field. Recently my laptop crashed, and had to format the harddisk. And it took me more then a week to comeback to my regular trading setup that I need. That means my trading buss factory was shut for 5 days while I was recovring from disaster.
Hopefully next time, it will not be down for more then a day.

Happy Trading
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  #7  
Old 17th October 2009, 08:42 PM
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Default Re: Thoughts on Risk Management

Thanks for a detailed response.In my opinion Issues of business continuity and insurance are somewhat intermingled.

A forum like this always can be a great help in business continuity plan of traders. I remember having read a post on this in TJ. It was simply an exhaustive piece of information , giving details on how to start trading as a means of living.

May be after some more interactions with professional traders, I plan to update this link further
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  #8  
Old 4th November 2009, 11:33 AM
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Default Re: Thoughts on Risk Management

Risk is a potential loss of any business event. The potential loss exists in future, and not in point of time of business event takes place. So the question of risk management is not avoid the risk, but it is about managing the risk.

Managing the risk is based on the measures of severity and frequency.

1. low frequency and low severity. (For eg. opportunity losses in trading due to non-availabilty of connectivity, executing personnel - which can be managed by placing adequate stand by (backup) arrangements.)

2. high frequency low severity (For eg. trading losses due to short term fluctuations in market prices, which traders manage generally with the help of stop losses, appropriate trading strategies)

3. low frequency high severity (For example system crashes, software system failures , absence of key personnel etc which needs to be managed with insurance, which we were trying to discuss in detail

4. High frequency high severity which is practically nil for any business, (may be except in agriculture)

Please give your thoughts on these points
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  #9  
Old 19th December 2009, 11:27 AM
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Default Re: Thoughts on Risk Management

Risk management is not just about taking well calculated risks. calculated risks is just the start of it. One must also be capable of managing it when the so called calculated risk goes wild.

A stoloss is not an insurance, it mere a pallatative way of quitting before it gets wilder. The market may not give a chance to exit at your stoploss, like opening gap.

Hedging with options is a viable way to get insured without nullifying your profits, provided you are not hedged throughout. Though risks are an intricate part of trading, it is usually well defined with peaks and troughs at certain points, where hedging is indicated.
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  #10  
Old 24th December 2009, 09:30 PM
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Default Re: Thoughts on Risk Management

Quote:
Originally Posted by bunny View Post
Risk management is not just about taking well calculated risks. calculated risks is just the start of it. One must also be capable of managing it when the so called calculated risk goes wild.

A stoloss is not an insurance, it mere a pallatative way of quitting before it gets wilder. The market may not give a chance to exit at your stoploss, like opening gap.

Hedging with options is a viable way to get insured without nullifying your profits, provided you are not hedged throughout. Though risks are an intricate part of trading, it is usually well defined with peaks and troughs at certain points, where hedging is indicated.
Well said, you are indicating a scientific way of making a risk-return trade-off. RM is about this trade-off, also about minimising down-side risks

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