1. Risk management is not only about protecting your business, portfolio, or trading strategy, it is also about improving it. Risk management should not be thought of as a compliance or self-control activity, but as a competency that allows your organization to realize its potential, whether that means driving growth, working to reduce costs, enhancing reputation, or leveraging capital assets.
2. Financial risk management is used to protect against global financial market risks. In addition to a program to avoid unnecessary risks through certain controls, many companies try to reduce the risks necessary for doing business by hedging their financial risks in the financial futures markets. The company or the individual trader may choose to use all the derivative instruments available to it for this purpose. A derivative is a financial instrument that "derives" its value from the value of some commodity or financial instrument. Of the financial derivatives, the most common are futures, swaps, and options.
3. The forward contract allows the trader or the concerned company to buy or sell a contract within a specified financial instrument for delivery at a future date. This would allow the company to protect against price reversal and price action fluctuations. For example, in three months, a company may have to fund a large order for about six months. Since they don't know the six-month interest rate in three months, they might consider selling a Treasury futures contract. If rates rise in the intervening period, the company will have to pay a higher rate, but this will be offset by the profit of buying back the bill of exchange contract since rates move opposite to rates. If the price falls, the company will lose in the forward contract (it must pay more), but this loss will be offset by the lower interest cost. The idea is not to try to outperform the market, but to reduce the risk of interest rates moving against the company.
4. Everyone who trades in forex and futures contracts (buying or selling) must understand that the risks of any particular transaction may lead to loss as well as profitability. The loss may not only exceed the amount of the initial margin but also the full amount deposited in the account or more. While several steps can be taken to limit the extent of potential losses, there is no guarantee that these steps will prove effective.
Futures traders should be aware of the risk management capabilities available. The commodity may currently be less volatile, and prices will fluctuate in a narrower range. They must be able to evaluate and select futures contracts based on current information—most likely to meet set goals.
5. The price action in the past or present does not provide a guarantee of what will happen in the future. Prices that used to be relatively stable can become very volatile (which is why many individuals and companies choose to hedge against unexpected changes in price movement).
6. Time factor: When trading futures contracts, it is not enough to be right about the price direction. It is also necessary to anticipate the timing of price changes. The reason, of course, is that an adverse price change may, in the short term, result in a greater loss than you are willing to accept in the hope that it will eventually prove correct in the long term.
Example: During January, you make an initial margin deposit of $1,500 to buy a May wheat futures contract at $3.3 - expecting that, by spring, the price will rise to $3.50 or higher. Once you buy the contract, the price drops to $3.15, with a loss of $750. In order to avoid further risk and loss, you need to ask your broker to liquidate the position.
7. Stop-loss orders: Futures traders often use stop orders in an attempt to limit the amount they could lose if the futures price moves against their position.
For example, if you bought a crude oil futures contract at $21.00 per barrel and wanted to limit your loss to $1.00 per barrel, you might place a stop-loss order to sell the contract if the price drops to $20.00 per barrel. If the market reaches the price you set, the stop order becomes an order to execute the requested trade at the best price that can be obtained immediately
In addition to providing a means of limiting losses, stop orders can also be used to protect profits. For example, if you bought a crude oil futures contract at $21.00 per barrel and the price is now at $24.00 per barrel, you might want to place a stop order to sell if the price drops to $23.00. It can protect $2.00 of your current $3.00 profit while allowing you to profit from any continued price increase.
8. Spreads - A spread involves buying one futures contract and selling a different futures contract in the hope of profiting from a widening or narrowing of the spread. Because gains and losses occur only as a result of a change in the spread - and not as a result of a change in the general level of futures prices - the spread strategy is often considered more conservative and less risky.
9. The most important element in the investment process is how one implements to build a portfolio within a specific program and a tight plan in managing risk reduction so that one can enjoy smooth performance and stay in business during dramatic market movements. In derivatives trading, one has a great deal of flexibility in designing a diversified investment program.
10. Futures trading requires a relatively small amount of margin. The trade mainly depends on how much risk one wants to take. The investor doesn't need to be restricted by the amount of initial capital for trading.
11. Risk management is designed into the investment process. The traditional asset management approach to risk management is a useful first step in designing a risk management program for leveraged futures trading. One still needs to add several layers of risk management to this approach because of the unique statistical properties of commodity futures contracts and because of the different ways futures products are marketed. A futures product usually does not have a specific standard, so the traditional asset management approach is more of a guide and directs the client to risk objectives and profit-return numbers during trading. Instead, one needs to determine the acceptable total return compared to the total number of risks in the client's account.
FxGrow Financial ensures the maintenance of a fair and competitive market by:
• Provide access to a central electronic platform.
- Transparent markets that make traders quickly aware of what is going on in the market (clear and proper monitoring of the market).
- Speed of execution: Thanks to the online platform, traders can open/close their positions in less than a second.
The intensity in the volume of transactions - the more transactions are in, the faster the entry and exit from it, and the process of absorbing the market for large deals.
In the end, there are many strategies for trading in the forex, futures, and commodity derivatives markets, which bring acceptable returns in a risky financial world. Returns +/- are not necessarily due to market inefficiency. There is an urgent need to find an important and positive component within the investment program.
It is the methodology and policy of risk management in investment programs. The investment manager must decide how much to profit from the strategy and whether to forego any returns by hedging some of the extreme risks of the strategy being pursued. He should also constantly monitor exposures to fluctuations in the amount of risk in his portfolio and ensure that such fluctuations adhere to pre-determined limits.
The brokerage offers a wide range of online trading services, including over 60 forex pairs, and a robust basket of Cryptocurrencies, indices, futures, and commodities. This includes ECN trading across the MT5 platform, the most advanced trading module available on the market today.
Headquartered in Cyprus, FxGrow was founded in 2008 and has since grown exponentially to service retail and institutional clients in more than 100 countries. In 2012, FxGrow LTD, a Growell capital limited brand name, became authorized by the Cyprus Securities and Exchange Commission (CYSEC) with CIF license number 214/13 and governed by MiFID.