Top Risks That Traders Must Always Focus On – Introduction
I have written about the risks that traders expose themselves to before. Still, I feel that I have not covered the topic adequately. In fact, the topic is so broad and important that it should be at the fingertips of all traders. In the past, I have written about the need to always have a stop-loss and the need to always have small trades open. In this article, I will highlight the top risks that you should always think about when opening a trade.
- Environmental Risks
To many people, the environmental risks are not in their mind every time they open a trade. Many of them, especially the newbies, don’t see the relationship between the environment and their trades. However, the environment is probably the most important thing that traders should always think about. For example, the recent events in Texas provide the best opportunity for one to understand the environmental issues.
The hurricane in Texas and the floods that followed have huge ramifications for traders. This is because they expose traders to asset classes that might be affected. For example, Texas is close to the Gulf of Mexico which is home to some of the biggest refineries in the United States. Closure of the refineries can positively impact the oil prices in the world. Gas prices can also move higher when there are such events. With the refineries shut and road network and airports shut, the transport companies that operate in the area are affected. In addition, the retailers that are shut can lead to lower share prices.
- Political risks
Politics is very important in the global financial environment. This is because politicians are tasked with developing policies that impact the social and economic well-being of countries. For example, in the United States, politicians are tasked with coming up with the budgets. They are also tasked with coming up with tax and regulation policies. Therefore, when there is an election, investors expect two things. First, they expect status quo to remain. This is where the government in place remains which means that the policies will not change. Secondly, they expect a new government to come in. In case of a new government, they anticipate new policies that could impact the financial market.
- Economic risks
As traders, we are faced with economic risks all the time. In fact, economic data from around the world is released every day. A strengthening economy means that it is safer to invest in those countries while economies that are declining are an indication of a weak trading environment. In many cases, economists and analysts have their expectations before the data is released. For example, if the unemployment rate in the United States in July was 4.7%, they might anticipate the August one to be about 4.6%. If the real numbers that are released are 6%, then the market will react in a negative way. The markets will fall and assets like gold will rise. Therefore, as a trader, you should always have in mind the prevailing market conditions.
- Security Risks
As a trader, the security risks are very important and should always be at the back of your mind. To many traders, we are living in dangerous times with increased terrorism risks. However, the world has always had security risks. Remember, in the past century, we have seen two world wars, the cold war, and smaller wars. We have also seen the terrorism events in different parts of the world. Today, we are seeing heightened risks in the Korean Peninsula. When such risks arise, the market is poised to fall as investors rush to the safe havens. However, they also create opportunities in the defense industry where defense contractors are expected to rise as more demand for their goods is created.