Risk management plays a huge part in any successful long term trading strategy no matter which asset you decide to trade.
Because both CFDs and spread betting are leveraged products, protecting yourself from excess market volatility and determining a risk appetite that is acceptable to you is a crucial first step in trading with greater control.
In this chapter we’ll look at some of the risk management tools available to you as well as trading strategies and tips to help you take a common sense approach to risk management.
What are some of the risk management tools available to me?
Stop Loss Order
You can place a stop loss order when you first open your position by checking the stop option directly from the trade ticket and filling in the amount in price or points at which you’d like your position to be closed out automatically.
If the market moves through your chosen price limit, your position will be automatically closed out without you needing to do anything, meaning you don’t need to constantly monitor your position. Stop losses give you added protection should market volatility spike and the market moves against you.
It is important to remember that while standard stop losses protect you against losses past your predetermined price point they do not protect you against excessive market volatility and market gapping.
Guaranteed Stop Loss Orders
A Guaranteed Stop Loss is an added layer of protection for your position and is guaranteed to be triggered at the precise level you have specified, irrespective of market gapping or volatility. A Guaranteed Stop Loss is especially beneficial if you are trading Commodities markets that have a particularly high level of volatility or if you’re trading around risk events which could significantly impact price movements, like political events, natural disasters or regional conflicts. We offer free Guaranteed Stop Losses on a number of our most popular markets, including Brent Crude and Gold. When you trade with ETX you can make use of our free Guaranteed Stop Loss Orders on a wide range of markets like:
- Germany 30
- Wall Street
- UK 100
- SP 500
- US Tech 100
- Brent Crude
Trailing Stops are a smart, particularly powerful tool that allows you to “track” market movement by setting a price point above or below market value at which you’d like your position to be closed out. Your Trailing Stop will then move with the prevailing market trend, allowing you to both lock in profits as well as minimise losses should the market move against you.
While an economic calendar may not immediately spring to mind as part of a risk management strategy, it can be an invaluable reference for factoring in events which have the potential to impact market prices.
By keeping a close eye on economic releases which are related to the market you have decided to trade you can anticipate potential moves as well as positive and negative sentiment.
Technical and fundamental analysis –
Analysis forms a critical part of your approach to trading and can help identify events, trends and releases which could impact your position.
Technical analysis focuses on price action and trends and relies on data to predict potential market movements. Technical analysts rely on indicators, patterns and charting to help them understand recurring trends and how these could influence future price movement.
Fundamental analysis looks at price movement with the benefit of greater context and includes a holistic picture of the market which includes things like economic data, the impact of political events and factors affecting supply and demand.
Many Commodities traders use a combination of both fundamental and technical analysis to understand how and why Commodities markets move.
*Free Guaranteed Stops are only free at certain times, on some markets for retail clients only - click here for more information