In the current bubble market, most traders have been so anesthetized to normal risks in Financial markets because of central banks' extremely accommodating policy measures that everyone is essentially swimming naked right now. Thus, when the liquidity tide recedes, there will be massive financial losses and fund blowups due to irresponsible position sizing, overextended leverage, and exceedingly lax Risk Management Principles in place throughout the financial system. There are going to be a lot of financial players who are not going to survive the next downturn in global financial markets.
In this video, we discuss risk management principles, including stops, hedging, and controlling risk through sheer size in the market. Keep in mind that every risk management strategy carries an associated cost, and it is up to the trader to determine which market tradeoff is right for their own risk profile.
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Courtesy of John Mark Gray, John has an MA in Philosophy and an MBA in Business. He has worked in academia, Fortune 500 companies, consulting, and financial markets. He has written many articles and white papers on financial markets and economics. He has a background in Logic & Game Theory and enjoys playing Chess and Poker in his spare time.
The views and opinions expressed herein are the author's own and do not necessarily reflect those of EconMatters.
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