Glossary - R

This glossary defines terms used throughout SMC Trader.  A version of this glossary is also accessible through the SMC Trader platform.

The definitions are broken down as simply as possible to ensure you have full understanding of how the SMC Trader works.

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Risk Management »

Trying to control outcomes to a known or predictable range of gains
or losses.

Risk management involves several steps, beginning with a sound understanding of one's business and the exposures or risks that have to be covered to protect the value of that business. Then an assessment should be made of the types of variables that can affect the business and how best to protect against unwelcome outcomes.

Risk management may be as simple as placing stop loss orders to prevent large losses or as complex as hedging positions with options or diversifying the portfolio to ensure that you are not overexposed to a single industry or instrument type.

Consideration must also be given to the preferred risk profile, i.e. whether one is risk-averse or fairly aggressive in approach. This also involves deciding which instruments to use to manage risk, and whether a natural hedge exists that can be used.

Once undertaken, a risk-management strategy should be continually assessed for effectiveness and cost.