Risk management is a key part of every successful and consistent trading strategy. Without a sound risk management plan, even with a proven trading strategy, the probability of becoming a competent trader is very low.

“Unfortunately, the vast overwhelming proportion of traders, especially relative newcomers to market speculation, do not have a clue about the finer points of risk management needed for consistent trading success.” This is the advice from Peter Brandt, a legendary commodities trader with compounded annual returns exceeding 41% over a trading career spanning 30 years! Today, I would like to show you how you can manage your risk in a precise way on CMC Markets’ Next Generation platform.

Risk management is mostly to do with the position size and using a stop loss to limit downside risk. To correctly determine position size, first you need to know your entry and stop loss level. Some traders are confused about whether to add spread to the buy/sell order or not. The good news is that Next Generation platform offers you the ability to use both a buy and sell chart; it makes taking spread into account much simpler. If you look to set up a buy order, then simply use the buy chart. Vice versa, use the sell chart for a sell order.

Once you know the entry/stop levels, enter them into the order ticket. Unlike other platforms, you have to deal with exchange rate when calculating the position size, the CMC Markets order ticket does all the magic for you. Enter a random position under the units box and the order ticket will calculate the risk automatically. You just need to adjust the number of units until it meets your dollar risk amount. 

For those trading stocks, you need to include the commission into your dollar risk calculation. You can get the commission information under the product overview. Please beware that there is a minimum commission charge if the percentage commission based on the position value is lower than the minimum commission amount. 

 

Hopefully these simple steps can help you achieve your risk management plan.

Hao Sun (Trade With Precision)