100 FAQ's on Basic Finance

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What are the various types of the risks once I start trading?

Most traders prioritize risk management very low on their list of priorities. However, profitable trading is not possible without adequate knowledge of risk management. To become a successful and professional trader, a trader must learn how to control risk, size positions, develop discipline, and set orders correctly. In this module, you will learn the types of risk involved in trading and how to manage them.

Types of Risk in Trading

  • Systematic Risk: Systematic risk, also known as market risk, is the uncertainty that affects multiple investments and cannot be mitigated through diversification. It is typically caused by macroeconomic variables such as inflation, currency fluctuations, geopolitical tensions, and environmental events. 

  • Unsystematic Risk: Unsystematic risk, on the other hand, refers to a specific investment or industry sector and can include changes in management, legal disputes, and other factors.

Key points for managing risk on trading

  • Position Sizing: Determine the appropriate size of each trade based on your risk tolerance and the volatility of the asset. 

  • Stop Loss Orders: Set stop-loss orders to automatically exit trades if the price moves against you beyond a predefined threshold. 

  • Diversification: Diversify your risk across different assets, sectors, or trading strategies to reduce the impact of any single loss. 

  • Trade with Discipline: Follow your trading plan rigorously and avoid impulsive or emotionally driven decisions. 

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