Understand risk management

[nobileprize55]

Risk management occurs everywhere in the world of finance. It occurs when an investor buys US Treasury bonds over corporate bonds, when a fund manager hedges his currency exposure with currency derivatives, and when a bank performs a credit check on an individual before issuing a personal line of credit. Stockbrokers use financial instruments such as options and futures, and money managers use strategies such as portfolio diversification, asset allocation, and position sizing to effectively mitigate or manage risk.

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Inadequate risk management can have dire consequences for companies, individuals and the economy. For example, the 2007 mortgage crash that helped trigger the Great Recession arose out of bad risk management decisions, such as lenders who provided mortgages to bad credit individuals. Investment companies that have purchased, packaged and resold these mortgages; And money that has been invested excessively in regrouped Mortgage Backed Securities (MBS), but remains risky.

 

 

How does risk management work

We tend to think of “risk”, mostly in a negative light. However, in the investment world, risk is essential and cannot be separated from desired performance.

 


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A common definition of investment risk is the deviation from the expected outcome. We can express this deviation in absolute terms or in relation to something else, such as a market standard.

 

While this deviation may be positive or negative, investment experts generally accept the idea that this deviation means a certain degree of the desired outcome for your investments. Thus to achieve higher returns one expects to accept more risks. It is also a generally accepted notion that increased risk comes in the form of increased volatility. While investment experts continually seek, and sometimes find, ways to reduce this volatility, there is no clear agreement between them on the best way to do so.

 

The amount of volatility an investor must accept depends entirely on the individual investor's risk tolerance, or in the case of the investment professional, to what extent his investment objectives permit. One of the most popular measures of absolute risk, standard deviation is a statistical measure of dispersion around a central trend. You look at the average ROI and then find the average standard deviation of it over the same time period. Normal distributions (the familiar bell-shaped curve) dictate that the expected return on investment is likely to be one standard deviation from the mean of 67% of the time and two standard deviations from the mean deviation 95% of the time. This helps investors evaluate risks numerically. If they think they can take risks, both financially and emotionally, they invest.

 
Example

For example, during the 15-year period from August 1, 1992 to July 31, 2007, the average annual gross return of the S&P 500 was 10.7%. This figure reveals what happened throughout the period, but it does not explain what happened along the way. The average standard deviation of the S&P 500 for the same period was 13.5%. This is the difference between the average return and the true return at most specified points throughout the 15-year period.


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When applying the bell curve model, any given outcome should fall within one standard deviation of the mean about 67% of the time and within two standard deviations about 95% of the time. Thus, an investor in the S&P 500 can expect that the return, at any given point during this period, will be 10.7% plus or minus the standard deviation of 13.5% around 67% of the time; It may also be assumed that 27% (two standard deviations) increase or decrease 95% of the time. If he can afford the loss, he is investing.

 

 

[MUGNIA]

Everything must have risks, let alone investing, life has risks, depending on us as actors in making decisions, especially if we are going to invest in crypto, we must use funds that are completely free to open.  Not main money, because crypto is unpredictable for the future

[hair]

Everything must have risks, let alone investing, life has risks, depending on us as actors in making decisions, especially if we are going to invest in crypto

True, we have a lot to learn to reduce these risks. The risk of investing in crypto is higher in proportion to the big gain. managing risk is the most important thing of that

[Stuart]

Risk management is one thing that we must face in everything that has to concern money in any from of its kind. There is one saying that "Life itself is risk, then not taking risk is more riskier than it all". I will say if we are looking for managers, it should be on those that has been in the system, otherwise do not use your main cash at hand or bank, rather, you use the free cash that will not affect the plans for tomorrow. Risk is one certain thing in the crypto space, we only get used to it and mange the risk which we can.

[Thymoty]

All actions we take in investing carry risks. And we also have to be aware that we are ready to lose our assets at any time, if what we plan is not what we expect.

[Gurujebs]

All actions we take in investing carry risks. And we also have to be aware that we are ready to lose our assets at any time, if what we plan is not what we expect.

For every actions, there is equal an opposite reaction you want to say my friend 
He who fail to manage risk, then he plan to fail. That's what every investment is all about.
Risk management encompasses security, when to trade in and get out of position. They all matter and I have made that as my no.1 priority when investing.
The last time, I never considered risk management when I bought 63bnb I tried to hold for long term and hold for launch pad in binance, I had a profit to take then but I refused because I never set a target. Sadly, I was emotional moved by the market sell of and I sold at loss.
Now I'm left in regret.

[Lorix]

There are many management or many teams at risk. Investing in them must be a loss. We have to take risks at every moment. Because no project or any coin can be improved or benefited without taking risk. The hope is to have a plaintiff, so that more profits come from a project. If the teams commit fraud, your assets will be at risk. If the assets are at risk, the amount of assets will be reduced. So I believe if there is good management. But you have to look at them and invest. To invest a lot of time you have to monitor a project and know well about that project. Only then is it possible to make a profit by investing. However, most of the risks are present in the cryptocurrency space at present.

[debra]

Risk management is a very important thing that must be considered. As we know, every trading or investment will always some amount of the coins to do that transaction. As we also know, the more profits you want, the more funds you will need. And if you are mind about that, you can bind your OTP I n order to know the probabilities

[xeroz]

Before you join an investment, you should know well the risks firstly because it will help you to deal with your risk management. I think it is the basic thing to be done by all investors or traders. By developing risk management, it means you can lessen the chance of risks to happen in your investment.

[Black ID]

This is a way that we can do to protect our crypto assets. Where by doing risk management, we will feel more safe. And also we are less stressed to see the chaotic market conditions. Because of course we have thought about it. Already have a view on it. By doing risk management, we can also prepare for the worst that will happen if we invest in a token.

[expander]

Pretty good explanation. I think everything we do is always subject to risk. In fact, every choice we make carries risks. And this of course makes us need skills in risk management. So that we can be more secure in this crypto and not easily get carried away by bad currents.

[hushpupppy]

Risk management is important if you want to succeed as a trader; you cannot lose focus, your energy should be towards making profits, correcting previous mistakes, and perfecting your trade strategy to a unique point. A Trader should always expect losses, don't give up

[MUGNIA]

All actions we take in investing carry risks. And we also have to be aware that we are ready to lose our assets at any time, if what we plan is not what we expect.

For every actions, there is equal an opposite reaction you want to say my friend 
He who fail to manage risk, then he plan to fail. That's what every investment is all about.
Risk management encompasses security, when to trade in and get out of position. They all matter and I have made that as my no.1 priority when investing.
The last time, I never considered risk management when I bought 63bnb I tried to hold for long term and hold for launch pad in binance, I had a profit to take then but I refused because I never set a target. Sadly, I was emotional moved by the market sell of and I sold at loss.
Now I'm left in regret.

really sorry it was never the beginning, I have also experienced the same thing.  I once held a bounty coin, hoping to have a good sale value and in the end I sold the coin at the last price because the coin was increasingly worthless

[Istiak]

Money management is the most important part of trading whatever you are trading cryptocurrency or forex or stock. So those of you who are trading in any market should learn money management first. It's more important to reduce losing trade that increasing winning trade. That makes the difference when trading.

[edmundo]

This is the first step to understanding damage control as an investors and a trader. Always learn the basic rules of risk management and apply them accordingly. A lot of people/traders have had their portfolios blown due to their inability to apply basic risk management protocols. Any trader and investor lacking in this will sooner than later have their assets and portfolios completely wiped out.