2023-03-19 11:48:51
What is risk management?
We are constantly managing risks throughout our lives - either during simple tasks (such as driving a car) or when making new insurance or medical plans. In essence, risk management is all about assessing and reacting to risks.
Most of us manage them unconsciously during everyday activities. But, when it comes to financial markets and business administration, assessing risks is a crucial and very conscious practice.
1. Setting objectives
The first step is to define what are the main goals. It is often related to the risk tolerance of the company or individual. In other words, how much risk they are willing to take to move toward their goals.
2. Identifying risks
The second step involves detecting and defining what the potential risks are. It aims to reveal all sorts of events that may cause negative effects. In the business environment, this step may also provide insightful information that isn’t directly related to financial risks.
2. Risk assessment
After identifying the risks, the next step is to evaluate their expected frequency and severity. The risks are then ranked in order of importance, which facilitates the creation or adoption of an appropriate response.
4. Defining Probability
The fourth step consists of defining responses for each type of risk, according to their level of importance. It establishes what is the action to be taken in case an unfavorable event occurs.
5. Monitoring
The final step of a risk management strategy is to monitor its efficiency in response to events. This often requires a continuous collection and analysis of data.
I hope you will remember these points and will help this on your trading style.
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