When you work to develop a successful trader’s mindset, you will want to realize the difference between business and trade risks and how each of them can affect your long-term profitability as a trader. This article will provide an example of each type of risk that you might encounter in your trade activities, so you can find out the potential for traps of this trade first to avoid them.
The first type of risk that you need to displete when developing an optimal trading mindset is business risk. This is the risk that your trade business will not have sufficient funds to fulfill their expenses. Business risks are often ignored by beginner traders who are sometimes more focused on making pips rather than a greater picture of what is needed to stay in business as a long-term trader.
For traders, business risks generally arise from financial risks, which are associated with the size and stability of debt payable that you may serve in business as traders. Business risk can also come from economic risk, which is based on how the overall economic and regulatory climate affects your trade business. Examples of specific business risks that sometimes traders sometimes fall into each of these two basic categories appear below.
A. Financial Risk:
Business risks for your trading company may include the following financial risks:
(1) You lose more trading money than you can to stop you to stop trading.
(2) have unhappy bosses, couples or business partners that attract their support because trade takes too much time and your attention without giving good financial results.
(3) The return of trade that is insufficient produces withdrawal of funds from investors in your trading business.
(4) Margin calls because of the adverse market movement that exceeds your ability to pay for it.
(5) interest costs on your trading loan that exceeds what you can do comfortably.
B. Economic Risk:
Business risk can also cover the following economic risks:
(1) The market becomes unavailable because of new regulations that exclude you.
(2) Market size, spread or commission becomes too unattractive to you to continue to participate in economically trade.
(3) Failure to get the items you need to be successful and competitive as traders due to lack of funds, knowledge or experience. These important items may include the implementation of trade, management systems and risk management, access to news cables, trade education and money management, etc.
(4) Tax code changes that are not profitable for your trade business.
The second risk type that pursues traders who pursue the constructive trading mindset needs to be remembered known as trade risks. This can be considered as a risk of creating substantial trade losses or maybe even prolonged failure to foster your trade portfolio value. Like business risk, trade risk can also be broken down into two secondary categories. In terms of trade risk, this risk is a risk associated with the market or risk not fully related to market conditions.
A. Risk related to the market:
Every risk-related risk that affects all traders and related to the entire economic system and market conditions are included in this category. The trading risk of this type involving market risk might include:
(1) The incorrect market view produces a trade position that is stopped due to losses.
(2) Losing liquidity produces widening the spread of transactions and results generated from many short-term trading strategies.
(3) Excessive market volatility causes the implementation of the Stop-Loss command (with or without the order level slippage) even though trade will be profitable.
B. Risk is not related to market conditions: