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Risk management is one of the most fundamental concepts in trading and involves all efforts to balance the risks of a trade with its potential return. The financial markets reward participants for accepting risk, as do all different forms of financial instrument such as loans or insurance. Managing those risks means ensuring they pay a sufficient amount to compensate the potential for losses, a concept which sounds simple but can become very complex when dealing with derivatives or fluctuating market prices.
One principle of risk management used by financial traders is the risk / return ratio. This is used when setting a trade with both stop loss and take profit points predefined, and involved making sure the ratio between the two is favourable. For example, if the stop loss is 2% below the entry point, a take profit level of 4% means that the trader need only be right 50% of the time for a strategy to work. Of course, these levels must be guided by reasonable expectations drawn from technical or fundamental analysis.
Another risk management principle is accurate risk measurement. This means using different metrics such as volatility, price ranges, and value at risk to calculate the exposure of your portfolio and ensure it is in line with your overall risk strategy. When a portfolio moves too far out of the accepted range, it is important to add or close positions to bring it back within your parameters.
ADSS offers a range of global markets for traders, with CFD opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.
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PO Box 93894
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Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.
ADS Securities L.L.C – S.P.C (“ADSS”), a limited liability company – sole proprietorship company incorporated under United Arab Emirates law. Registered under Commercial License No.1190047. ADS Securities L.L.C S.P.C is regulated and authorised in the UAE by the Capital Market Authority (CMA) under Category 1 License No.305027 (Trading Broker, Trading and Clearing Broker, Trading Broker in the International Markets, Trading Broker of OTC Derivatives and Currencies in the Spot Market, Financial Products Dealer) and Category 5 License No.20200000217 (Introduction). Registered Office: 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.
The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.
ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.
