Everyone has some type of understanding of what risk means. As kids, we are taught that if something is risky, we are told not to take risks or to avoid them. Risk is defined as the possibility of loss or injury when it is to everyday life. When specifically discussing finances, it is defined as the potential loss in an investment decision. It is important to understand risk and risk control.
We all take risks every day, knowing risk is involved ahead of time. There are risks with driving a car, bike, or going snowboarding. We accept the level of risk because we have been trained that, although, there is a potential for death or serious injury. If we are careful, the chances of something detrimental happening to us are very low. We have trained ourselves to evaluate the probability of something happening that we don’t want to occur, and the consequence if it does.
This same concept is used in making financial decisions. In general, as investment risks rise, investors seek higher returns to reward themselves for taking such risks. Every saving and investment product has different risks and returns. These risks include how Investors can get their money when they need it, how fast their money will grow, and how safe their money will be. We will discuss in this article how understanding risk control is imperative.
Understanding Risk Control: Risks Investors Face
With a stock, you are obtaining a piece of rights in a company. With a bond, you are loaning money to a company. Returns from both of these investments entail that the company stays in business. If a company goes bankrupt and its assets are liquidated, common stockholders are the last in line to share in the profits. If there are assets, the company’s bondholders will be paid first, then holders of preferred stock. When you are a common stockholder, you get whatever is left; which may be zero.
Even when companies aren’t in danger of fading, their stock price may fluctuate up or down. Market fluctuations can be unsettling to some investors. A stock’s price can be affected by factors inside the company. Things such as faulty products, political, or market events. Inflation reduces purchasing power, which is a risk for investors receiving a fixed rate of interest. The primary concern for individuals investing in cash equivalents is that inflation will eat away at returns.
Interest rate changes can affect a bond’s value. If bonds are held to the prime of life, the investor will receive the face value, plus interest. The bond may be worth more or less than the face value if sold before maturity. Rising interest rates will make newly issued bonds more attractive to investors because the newer bonds will have a higher rate of interest than older ones. To sell an older bond with a lower interest rate, you might have to sell it at a discount.
Liquidity risk refers to the risk that investors won’t find a market for their securities. Possibly keeping them from buying or selling when they want. This can be the case with the more complex the investment product is. It may also be the case with products that charge a penalty for early withdrawal or liquidation, such as a certificate of deposit (CD). Savings accounts, insured money market accounts, and certificates of deposit (CDs) are generally viewed as safe because they are federally insured by FDIC (The Federal Deposit Insurance Corporation).
Understanding Risk Control: Better Understanding
The combined approach to risk financing and risk control was developed in Europe during the 1970s. Risk management is not about controlling risk out of existence. More of learning to take more risks and accepting failure. To perform better than the rest, you must take a greater risk. The difference is the risk need to be calculated and not done blindly.
Risk control is the set of activities within an organization started to deliver the most promising outcome and lessen the unpredictability of that outcome. Risk management thoughts will help with attaining effective and efficient strategy, and tactics. Operations and compliance are taken into account to ensure the best outcome with reduced instability or results. Risk control is important for the health of an organization because it helps the company attain its goals and profits by protecting against financial risks that may affect the bottom line. Although risk control is part of risk management, the two ideas are not the same.
A company might control the risk of equipment failure by performing maintenance checks according to a fixed schedule. That is not the same as the entire risk management process of identifying equipment failure as a potential threat, mitigating the threat through maintenance, assuring sufficient surplus equipment in case of failure, and reporting on equipment maintenance to senior executives. Risk control is explicitly focused on preventing risk, reducing the effect of that risk, and reducing disruption should the risk occur.
Understanding Risk Control Elements
Applying safeguards that eliminate or reduce the business risks that can harm the organization’s assets is known as risk avoidance. Risk transference is shifting the risk to other areas of the business or outside entities; such as an insurance company. The goal of risk transference is to let another entity accept the risk.
Risk mitigation is reducing the impact if a bad actor exploits a weakness. Risk mitigation means having policies and procedures in place to lessen the opposing effects when something happens. These risk mitigation strategies include incident response plans, disaster recovery plans, and business continuity plans. Understanding the potential penalties of risk, and accepting the chance of those consequences of control or mitigation, is known as risk acceptance. An organization might incorporate risk acceptance when it is certain of the chance of the risk happening is minimal. Another time would be that the potential harm from the risk wouldn’t be important.
The same elements apply to day trading, you have to know how you will respond to a trade. How to recover from a loss and have a plan in place before you even enter into a trade. Risk acceptance is imperative so that when the loss does occur, it doesn’t derail your mind that then trigger hurting your pocket. Elements such as stop loss set and setting a number you are comfortable is loss are so important in day trading. It is impossible to never lose a trade, but you can do things to help control how much you lose.
Summary: Understanding Risk Control
As you can see, risk surrounds us, whether it be everyday life decisions about just leaving the house or finances. You learned that risks will always be there, no matter how careful you may be. The importance is to have a basic understanding of how controlling risk can reduce risk in your day trading. I can teach you how to day trade like the top 10% without a complicated strategy or any technical indicators, even if you are a beginner. My goal has always been to teach as many day traders how to complete a risk assessment and achieve their personal financial goals; whether they are novice traders or experienced traders.
The MK VIP training has plenty of resources to help you get started on reaching your day trading goals. I teach the working class how to earn $10,000 a month through day trading and incorporate risk management activities. I help my students identify the challenges I faced when I first became a day trader to avoid many risks and explain to them the potential impact it can have.
As of now, MK Financial LLC is already the #1-day trading coaching business in the US in just one year. You are just a click away from unlimited access to learning what you need to do to understand risk control when it comes to becoming a day trader. What you need to do to have a risk management plan in place. This can be accomplished with any amount of capital, and you can take your life and salary to the next level.
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
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