Risk management is probably the single most
important element to becoming a successful trader. Going into the
world of online trading without an understanding of risk is like
driving a car without any brakes.
Before looking at the individual order types that are generally
available to the retail and professional trader it is important to
first understand the market you are trading and to look at the
potential volatility.
Most brokers and market makers now offer historical charting
packages which allow traders to go back over considerable time
scales to gain a better understanding of how your chosen market
moves and the economic releases and policy announcements that are
likely to affect it and potentially increase the volatility.
Only once this study has been completed can you successfully
begin to build a risk model and maximise the use the risk
management tools on offer.
In this section we will take a look at the various risk
management tools that are available through online brokers and
market makers.
With the exception of guaranteed stop losses all of these tools
are offered free of charge and we would recommend
that one or more should be used for each and every trade
placed in the market.