Pip Mavens Principle #4
Trading is not just about managing market exposure risk; It's about managing ALL risk.
This includes risks found outside the trading chart that are often ignored.
For example, everyone knows to protect against market risk by trading with a stop loss.
But, in the event of a dispute with their broker, many have not considered the risks they are exposed to.
Think about this:
- What if your broker executed a trade on your account without your knowledge?
- What if your broker ran away with your funds?
In this business, there are many ways things can go wrong that have nothing to do with the markets.
Have you thought about these risks and protected yourself from them?
Here are some to consider and how to protect against them.
Risk: Your internet connection is suddenly cut off and can't be quickly resumed.
Protection: Have multiple connections on hand. Example: A home connection, 4G (phone) connection, a cafe with wifi nearby, etc.
Risk: Your computer/laptop/trading platform suddenly fails to work properly.
Protection: Have multiple versions of the trading platform (desktop, mobile, browser-based), and trade on multiple platforms (MT4, cTrader, etc).
Risk: There's a power blackout.
Protection: Have a backup laptop/tablet with a power bank nearby.
Risk: The market price suddenly moves strongly against your position.
Protection: Always use a stop loss. Never bet the farm on a single position.
Risk: Your broker runs away with your money, or does something illegal with your account/funds.
Protection: Split your capital across multiple brokers. And only trade with brokers regulated in strict, reputable financial jurisdictions with comprehensive client rights (example: Australia, UK, US, Singapore).
Risk: An investor pulls capital, significantly affecting your trading income.
Protection: Have multiple small investors rather than a few big investors.
Personal financial risks
Risk: You go through a long drawdown period, with no trading income.
Protection: Have other sources of income and/or a pool of savings. This is important.
Have a failsafe in every aspect of trading
Always ask: What's an occurance that - however unlikely - can cause tremendous damage?
Take pre-emptive measures to protect yourself from it.