Volatility returned to the financial markets in a big way in September, as the combination of weak global growth, political uncertainty and ineffective monetary policies weighed on investor sentiment. The forces of fear and greed were on perfect display in recent weeks, as markets took turns buying and selling assets.
The recent bout of market turbulence certainly isn’t unique, and reminds us of the growing need to protect capital in current market conditions. In an environment dominated by high-frequency trading and computer-based algorithms, successful traders understand that capital preservation is equally important to profitability. After all, profits are never fully realized if they are subsequently lost. Risk management – the process of mitigating or eliminating uncertainty in investment decisions – teaches traders how to preserve capital by removing emotions from their decisions and applying practical methods to limit exposure to uncertainty.
In today’s environment, traders have many tools at their disposal to mitigate risks. As online retail trading has proliferated, the financial industry is constantly innovating to provide more capital protection mechanisms. Guaranteed stop-loss orders, take-profit points and negative balance protection are just some of the ways leading brokers are helping traders preserve the integrity of their accounts.
As a trader, it’s important to find innovative risk management tools that allow you to cancel a losing deal ideally within 60 minutes of placing it and have your original investment refunded. Such tools should be available on major currencies, such as the USD/JPY, EUR/….