Risk management and Risk Control

A relative ease and availibility of this business tempt many participants on the Stock Exchange to a variety of strategies and approaches. Some are thoughtful and are a result of smart approaches. However, there is a larger number of speculators, who are so strongly focused on profits, that either consciously, or more often from ignorance, make speculations with a high risk.

Market risk on the Stock Exchange represents possibility of partial or total capital loss and without any compensation. On the other side, successful activity on the Stock Exchange enables to make profits that are simply unreachable in other business. On the Stock Exchange, always work only with a risk capital. That is a capital, that won"t jeopardize your standart of living or won"t cause other damage if you lose it. Last savings, withdrawing of the building savings or loan can not be considered as a risk capital. Always consider the consequences of potentional capital loss. Only you take responsibility for your money on the Stock Exchange. Risk of capital loss can be limited by trading on CFDs and Forex type of Exchange, where you can not lose more capital than you have on your account (like Ltd.). Unlike the risk coming from trading on conventional share or commodity Exchanges which can be completely unlimited and you can guarantee with all your assets.

On the other hand, a profit potential on the Stock Exchange is completely unlimited. You can appreciate your capital by percents but also by tens or hundreds of percents. The final potentional taxation of profits coming from Stock Exchange can be quite minimal, in some investments models even zero. Check your possibilities according to the size of capital. You can do business on the Stock Exchange as a natural or legal person (company) or even as a Offshore company, which is quite popular model of major investors.

Risk management on the Stock Exchange

Every trade or position open on the Stock Exchange has a potentional of profit or loss. The mastery of professional speculators contains examining of potentional risks and threats. Professional trader always counts, before every trade, how many Lots he can put into the trade, considering the possibilities of his accounts, financial efficiency of an asset and potential of market movements in both directions. Professional never put larger amounts of Lots on one trade so there is no potential threat for account within 1-2%. They work with minimal risk. In the case of profitable development they can buy more and thus earn more. In the case of unfavorable development they have more options for Loss management. Especially with regard to the experience, that markets behave cyclically and 80-90% of all losses are just temporary.

To study the issue of Risk management we recommend both Online Trading Manual or other literature dealing with this issue and especially the training and practise. Learn to trade only with one Lot so long, until you understand most of the market pitfalls and your decision-making processes.

Risks under control

The best way you can control risks is trading with minimum number of lots on one trade. Generally, we recommend 1-2 Lots on every 10 000 of operational capital in the terms of Goldstar. Technically it is possible to trade even with much greater number of Lots, but only until the first financial accident... Don"t forget, that final financial efficiency of your trading is product of financial efficiency x number of lots x potentional of price movement. This result divide by the size of your account (account size -; balance) and you get a relative number, potentional of your risk. 1,2 % is all right. 5% is permissible. Tens procents of potentional undergoing risk, that is gambling.

Trading on the Stock Exchange is a permanent process of control. Keep not only price development of monitored assets under control, but mainly your procedures and approaches. Trading on the Stock Exchange is primarily a mental process. Therefore, it is necessary to have your own thinking and procedures under control at the firts place. Results on the Stock Exchange are created in head. Nobody does the control of your procedures and your decision-making on the Stock Exchange for you.

Always have your decision-making under control, calculate with risks. Work with adequately large accounts. Use the Bonus Trading Margin for covering your risk. Don"t gamble. There is a lot of stories when a starting trader cleanes his account by overtrading in one day or week. Likewise, there are many successful speculators, who control their trading processes. We wish you luck in that.