What Is Risk Management in Trading?
In the trading realm, risk management refers to the tools and strategies used by traders and investors to mitigate the risk of losing money due to adverse and unexpected price conditions. In other words, risk management tools are meant to minimise losses and protect profits.
What Types of Risk Management Tools Does Plus500 Offer?
Plus500 offers some of the most popular and must-know risk management tools, such as "Close at Profit," "Close at Loss," "Guaranteed Stop," and "Trailing Stop."
Close at Profit & Close at Loss (Example)
Close at Profit (Take Profit) automatically closes your position, securing profits when the market price reaches a predetermined level. For instance, if you purchase 10 Amazon Share CFDs at $200 and set a Take Profit order at $250, your position will automatically close, locking in your gains, should the price hit $250.
Conversely, Close at Loss (Stop-Loss) is designed to mitigate losses by automatically closing a position when the asset's price reaches a specified threshold.
Trailing Stop (Example)
This tool protects profits and limits losses by adjusting the stop price as the market moves in your favour. For example, if you buy 10 Microsoft Shares CFDs at $190 and set a trailing stop of $2, it will adjust to $198 if the price rises to $200, protecting your profits.
*It should be noted that these orders may be subject to slippage in volatile markets.
Guaranteed Stop (Example)
This tool sets a maximum loss limit, protecting you from market fluctuations and slippage. For example, if you buy 10 NVIDIA Share CFDs at $200 and set a Guaranteed Stop at a Sell rate of $150 (with an additional $10 for a wider spread), your position will automatically close at $150, even if the Sell rate drops to $100. This limits your loss to $510, significantly less than the $1,000 loss you would incur without the Guaranteed Stop.
How to Use Risk Management Tools on the Plus500 Platform
To use risk management tools when trading on the Plus500 platform, you need to follow the following steps:
- Log in to your Plus500 account
- Click on your preferred financial instrument
- Open a buy or sell position based on your goals
- When buying or selling, you'll find "Close at Profit," "Close at Loss," and "Guaranteed Stop" options. Additionally, a "Trailing Stop" option is available under the "Advanced" section.
Conclusion
In a market defined by volatility and uncertainty, effective risk management is essential for both new and experienced traders. Tools like Close at Profit, Close at Loss, Guaranteed Stop, and Trailing Stop provide practical ways to manage risk, protect your capital, and lock in gains. Understanding and using these features on platforms like Plus500 can significantly enhance your trading strategy and confidence.
Why is risk management important in trading?
Risk management tools protect your capital by limiting losses and securing profits during volatile market conditions.
Stop-Loss vs. Guaranteed Stop: What's the Difference?
While a Stop-Loss aims to close a trade at a predetermined level, it's susceptible to slippage in volatile markets. In contrast, a Guaranteed Stop ensures the trade closes at the exact desired price, even amidst rapid price declines.
Can I change my risk management settings after opening a trade?
Yes, Plus500 allows you to modify or remove most risk management settings even after opening a position.
Does using a Guaranteed Stop cost extra?
Yes, there's a slightly wider spread for trades with Guaranteed Stops to cover the guarantee.
Where can I find these tools on Plus500?
When opening a trade, the options for Close at Profit, Close at Loss, and Guaranteed Stop appear directly. The Trailing Stop is under the "Advanced" section.
