TYBFM 109 Urvil Desai SemV Technical Analysis

Name-Urvil Desai
Roll.No – 109
Q1) What is the need for risk management in trading?

Risk management helps cut down losses. It can also help protect traders' accounts
from losing all of its money. The risk occurs when traders suffer losses. If the risk
can be managed, traders can open themselves up to making money in the market.It
is an essential but often overlooked prerequisite to successful active trading. After
all, a trader who has generated substantial profits can lose it all in just one or two
bad trades without a proper risk management strategy.
Risk is inevitable and is everywhere from simple things like crossing a road or
turning a gas at home. In a financial scenario such as making investments in
shares, bonds, or property, the risk is an integral part of the business. Different
persons have a different idea of the definition of the risk; there is no standard
approach to calculate the risk. Risk cannot be mitigated totally a portion of risk
will always be there, however, risk level can be reduced to a certain extent by some
measures such as a simple checklist or mechanical process. In simple terms, Risk
can be defined as the probability of losses out of an uncertain event. Financial
risk may arise due to transactions such as investments, financing, business
activities, sales, purchases, etc.
Financial markets are full of uncertainties, the different risk is associated with
different classes of assets/instruments, ignoring of these risk level can create havoc
and turn into major losses. The magnitude of the risk level depends on the nature
of the financial instrument. Therefore, a proper risk management model should be
adopted to address exposures arising out of different risks in a continuously
changing and evolving ecosystem. Quality Information plays a vital role in
managing and managing risk thus developing a strategy. Financial risk
management is crucial, hence it is important to identify, measure, and prioritize
risks with some precautionary measures and strategies whether at a personal level
or corporations.
A simple idea is to find what risks should be avoided, what risks to digest, and
which risks should be responded to based on risk appetite. There is no magical
formula to tackle but with a proper mix of qualitative and quantitative controls, it
can be minimized to an extent. Many times risk arises due to the failure of
achieving a financial objective. These risks may not be dependent or dependent on
each other based on certain conditions. For example, foreign exchange rate and
interest rate risk are linked with each other. Financial risk management further
could be understood with the help of the following categorization:
Market risk: These types of may arise mainly due to possible losses of changes in
future market prices or interest rates.
Credit risk: Credit risks are the financial risks that may arise due to a counter-
party default. Sometimes clients fail to pay and this can hamper business cycles.
Liquidity Risk: These financial risks may arise out of the insufficient transaction.
For example, asset-liability mismatch, funding liquidity risk, etc. A firm must have
proper cash flow management.
Operational Risk: These are the risks associated with operational failures for
example management or technical failures.
Risk is always not bad if addresses properly until its level can be controlled
Up to a certain extent and in fact can provide an opportunity.
The following key processes can be applied while handling financial risk
management:
 Recognize and highlight important financial risks associated with a business.
 Fix an appropriate level of risk tolerance level (risk-bearing limits).
 Apply a proper risk management strategy to handle such types of risks.
 Measure, monitor, report measures adequately, and redefine the process as
per changing requirements.
The financial crisis relatively is not new in concept and is difficult to predict when
the next burst will happen. After the 2008 economic crisis, it has become important
for financial institutions to adopt a risk model. On the organizational level, the risk
could be either internal or external. In the securities market, Futures are options
that are widely used as a risk management tool for hedging purposes.
Diversification helps in risk in managing the risk of your portfolio. Financial
analysis is also part of managing risks. Knowing risks helps in making decisions
quickly and part of a plan of action. It helps in figuring out the best financial
opportunities and stay trendy and aggressive in the market within its assumptions
of risk and opportunities set-ups. A proper risk management framework connects
the goals, tactical capabilities, and value-generating tool for an enterprise to help it
both succeed and survive in the future. On the personal front, people invest their
hard-earned money based on instinct and generally ignore the performance
anticipating huge returns, and ideally, it is not a good idea.
Q2)What are different techniqes of risk management in trading?
The size of the investment depends on the size of your capital:-

It is important to remember that the capital you have will, to a degree, dictate how
much you can risk. Why? Because no trader – not even the most professional,
experienced, gifted trader in the world - achieves a 100% rate of trading success.
When losses occur, you need to have sufficient funds in your account to enable you
to keep trading. This is why some traders choose to limit the size of each trade to a
fixed percentage of their capital. This way, they know that even if they lose a few
trades in a row, chances are, they will be able to keep on trading.
Stop Loss:-
Stop Loss is a market order that allows you to limit potential losses. You simply
set a rate in advance at which you want your deal to close automatically. Stop Loss
is a great tool that can help you prevent excessive losses, and it’s particularly
crucial for traders who manage multiple deals and cannot keep track of every rate
around the clock. Even if you only open one trade, Stop Loss can be extremely
useful.
Note that on top of Stop Loss, you can also set a Take Profit order, which
essentially “locks” your potential profits, automatically closing the deal at a
specific rate.
Portfolio diversification
One of the quickest ways to reduce risk is portfolio diversification. By investing in
various CFD instruments: Shares, commodities, indices and currencies, you can
expose your trading portfolio to various markets and reduce risks.
Risk/Reward ratio
The risk/reward ratio allows investors to compare the estimated returns of an
investment to the amount of risk involved in achieving these returns. How is it
calculated? You divide the amount the investor will lose if the price moves
unexpectedly by the profit the investor expects to make when the position closes.
Traders often use the risk/reward ratio with stop loss orders, so they can know their
maximum potential loss in advance.
Expected return
Expected return is simply how much profit or loss an investor expects on a specific
investment. We hope we don’t need to tell you that expected return is usually
based on historical data and is not, in any way, guaranteed. By calculating
expected return, traders can compare between investment opportunities as well as
make decisions regarding market orders.

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Name-Urvil Desai

Q1) What is the need for risk management in trading?

The size of the investment depends on the size of your capital:-

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