Risk Management

In doing a trade, everyone must have their way in anticipating the unfavorable situation that might happen in the future. A lot of ways that traders can do in order to keep their portfolio alive & growing. Today I'll share three ways in diversifying the risk so that our portfolio can keep growing day to day.

1. Diversifying risk by diversifying the portfolio to other exchanges

This is a very good way & becoming my first choice in order to keep the portfolio alive, yet this is a very effective way. For instance, a trader who trades in Indonesian market also trade at European or China market. This means he has diversified his portfolio risk to other country, beside of having currency exposure. If Indonesian market isn't in good condition, other country might still have their condition good, like the current one in Egypt, the traders in Egypt still can trade at European market or US market.

2.Doing multiple trade by having a long & short positions at the same time

This can be done only when the market is in uncertainty of directions, which means you buy a stock & you short other stock. For example, because of a very uncertain movement of the markets, yet the economic data is so choppy, a trader would buy a XYZ stock which is now in a very bullish position, and short ZYX stock which is a very bearish stock. This can reduce the risk if the market goes up, you might earn profits from XYZ but when market turns unfavorable, you might still earn from ZYX stock.

3. Buying options

The hardest yet complicated choice, as we need to analyze which options & at what strike we have to buy. The other things to be considered in buying options is the Greeks factor, which change every tick of changes in the underlying. For example, I long a XYZ stock at 25.5, and in order to keep my portfolio insured, I buy a put options of XYZ at 25 strike price, once the XYZ goes up, I loss on the options but profit on the stocks & vice versa. This is not so effective but still hedges the risk of losing more money especially in futures trading.

Happy Investing^^

Disclaimer ON!!!