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Four ways traders can manage risk

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By Dáire Ferguson, CEO at AvaTrade

 

Understanding the markets in which you are trading is incredibly important to optimising profit, as well as manging risk and loss. While trading can be incredibly lucrative, it can often be difficult to judge which way the market will move – especially when executing shorter-term traders, where unknown factors can cause unexpected movements. Being aware of the risks is vital to avoid unnecessary losses and to optimise the trading experience.

Dáire Ferguson

There are several techniques that can be employed to make sure the risks associated with trading are controlled, rendering the trading experience smoother and more enjoyable. From beginners to experts, having these tactics in your arsenal will enable traders to be savvier, and more confident.

 

Understanding the risks

To really be able to manage risk, it is imperative to understand the two types of trading risks.

Leverage

Leverage is where traders stake only a percentage of the value of the underlying asset they wish to trade on but accept exposure to the full value of the profit and loss that comes with the asset’s price changes. This enables traders to take sizeable positions for comparatively less trading capital, thus providing an opening for big wins and substantial rewards.

However, with this comes the risk of similarly significant losses. As an example, if a trader opens a £100 trade on an asset worth £1,000, using leverage of 10:1, this means that if the assets value increase by 10 per cent, the trader’s money will be doubled. But if it drops by just 10 per cent, the trader will lose all their stake. This balance of high risk and high reward necessitates careful management. Leveraging typically applies to purchasing and trading contracts for difference (CFDs).

Volatility

Volatility is characterised by unexpected fluctuations in the prices of assets and is defined as the rate at which pricing rises or falls given a particular set of returns. Volatility applies to all assets, but the regularity and size of price changes differs hugely across different asset groups. In fact, in some markets, volatility is actually predictable. The cryptocurrency market is well known for its fluctuations, characterised by frequent and, often, significant changes in price.

There are scenarios in which volatility can be desirable for some traders as it fosters greater profit margins. However, it also sharply increases the potential for large losses. Nevertheless, there are a number of ways to spot incoming market fluctuations. These include economic volatility, geopolitical tensions, and changing policies.

 

Managing the risks

Choose the right broker

So, what can traders to do manage these risks? The first step is to choose the right broker. Having the right broker can go a long way to limiting the risks that come with trading, including managing counterparty risk. For example, when you purchase CFDs, you are purchasing a contract with a broker – not the asset itself. Therefore, traders must be 100 per cent certain in the knowledge that the broker they’ve chosen to operate with is capable of making good on the value of that contract.

Traders who are just starting out on their trading journey should look to open a trading account with an established name that is well regulated in a variety of jurisdictions. Higher-quality brokers will generally have a wider range of risk management tools and offer better features, which will allow traders to manage the buying and selling of assets in a better, more sophisticated manner.

Take out protection on riskier trades

For new traders, or those who are looking for extra support, it is worth considering taking out protection against losses for a set period of time. Certain brokers offer risk management tools that provide thorough protection against such losses. These tools generally require just a small fee, not unlike the premium on an insurance policy. These risk management tools allow users to stay in the trade, riding out any short-term drops in value and benefitting from a positive overall momentum of the position. Therefore, if the market moves in a different direction to what was originally expected, users only lose the cost of purchasing the protection and can recover their losses.

Set-up stop-loss orders

Another form of protection against losses is through a stop-loss order. This is an instruction that is executed automatically when certain conditions are met. Therefore, stopping losses from falling below a certain point, and setting a limit on how much an investor can lose on a trade. In the case of a stop-loss order, the position is sold at a predetermined rate – below the current market price for a long position, or above the current market price for a short position.

Stop-loss orders remove the user from the trade at a set price drop. In comparison, risk management tools allow the user to ride out any short-term drops in value, with the potential to benefit from a positive overall momentum of the position.

Manage the capital-to-trade ratio

One simple way traders can reduce the risk of accumulating excessive losses is to keep their capital-to-trade ratio under control. This is the amount of capital left exposed to losses in trades compared to the total amount of capital traders have available to themselves.

A sensible rule for traders to follow is to not exceed a capital-to-trade ratio of 10 per cent, and not to risk more than two per cent of the overall capital on a single trade. This doesn’t mean always taking very small positions – it means traders should hedge their risks on whatever positions they choose to take.

It is important that before traders even begin to trade, they make sure that they understand the risks they face. Once they have taken the time to do that, they can begin to contemplate these four ways to manage those risks and then start trading. This is an exciting time to be entering the world of trading, and these considerations should ensure that the trading experience is as enjoyable and profitable as possible.

Business

Hidden channel costs: how to find and tackle them

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By Mark Wass, Strategic Sales Director, UK and North EMEA at CloudBlue 

 

Growth for businesses will always be a key objective. However, in this digital age, if it occurs too rapidly, it can often unearth cracks that harbor hidden costs and pre-existing efficiencies.

 When it comes to channel distribution, for the majority of partners, hidden costs are widespread. A lot of partners work with multiple channels and systems, and this can become complicated. It can also affect their ability to track information.  On average, 30%-40% of IT spending  in large enterprises is accountable to inefficiencies caused by shadow IT.

 There is no single root cause of hidden costs. An array of issues such as wasted resources, labour, time constraints, poor implementation oversights and maintenance issues are all contributors, and the cuts only get deeper as partners scale. Here are the ways service providers can eliminate hidden costs.

 

Where to look for hidden costs 

 In general, unaccounted, or unattributed costs originate from four areas, with the first being shadow IT.

 Shadow IT is the use of systems, devices, software, applications, or services without explicit IT department approval. The phenomenon has grown in recent years due to the adoption of cloud-based applications and services, with the average company using 30% more unique SaaS (Software-as-a-Service) apps than they were in 2018. Thanks to the ease of adding new software, departments are going it alone and buying platforms that can be niche, or duplicate processes, and even in some cases using multiple versions of chat apps to communicate internally. 

Mark Wass

The next hidden cost stems from implementation and integration. Channel partners need to work within different systems, and almost always underestimate the budget needed to work with new software solutions. A consistent blind spot across the industry is the inconsistency of implementation and integration at budget.   

In terms of maintenance, it is especially difficult when partners create homegrown software to handle provisioning, relationship management, or data management. While such proprietary software might perform well for initial purposes, maintenance and upgrades can be a nightmare. Likewise, internal knowledge transfer in this situation is crucial.  

And finally, the scalability of expanding from one market to the next is not linear and neither is the cost. Partners that have already launched in one part of the world often think that it will cost around the same to expand into another region, like between the US and Europe. However, this thinking does not consider the additional effort to contend with the new currency, language, audience, and regulation, as well as local operations within the region.  

 

Tackling hidden costs  

The good news is that there are multiple remedies to hidden costs. Integrations, for example, successfully bring together disparate systems and improve efficiency. Partners that have manual processes and pull information from one system before typing it into another are wasting time and resources by dedicating an entire person to this process. Clearly, this should be automated to cut down on human errors and save in the long run. 

Along with integrations, partners should purchase software with scalability and unification at heart. There is no magic platform that does everything entirely so companies should opt for the best of breed, even if the initial investment is a bit more. This will help to offset the concerns of scalability, maintenance, lack of expertise, and potential unforeseen overheads. Moreover, best-in-class platforms help to paint a consistent long-term picture of the health of channel operations. 

For channel health, it is also integral to integrate outside experts to perform an overall business diagnostic. These can be consultants, solution architects, and those alike that know channel software and best industry practices to help architect a scalable and efficient platform. Working in conjunction with the team, these objective outsiders work to find the gaps and tighten any software screws. 

 

Helping the channel by combating inefficiencies

Hidden costs can become widespread, and this can lead to channel partners paying up to twice the price for half the output.

 More than the financial downside, though, hidden costs should be thought of as hidden inefficiencies. Especially in today’s accelerated digital transformation, inefficiencies can make or break fast-growing channel operations. Therefore, weeding out hidden costs with improved efficiencies can work wonders by saving budget and running a tighter ship. 

 Integrated software and platforms can then be used for change. By unifying and standardising existing systems, managers receive a single view of contracts, reporting, sales, marketing, and day-to-day operations. This  provides them with the right tools to achieve sustainable growth. Rather than overwhelming teams with several types of platforms and software, this single operational view allows for the much-needed oversight that is necessary to set a business up for success. 

 It is essential for channel partners to seize the moment and eliminate the perils of hidden costs, especially given the rapid growth of businesses in the digital and cloud spaces.

 

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Automation nation: Liberating workers from desks, data entry and the doldrums

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By

Gert-Jan Wijman, VP of EMEA at Celigo.

 

Just when businesses thought the tough times were over, even more challenges ensued. While still recovering from the financial effects of the pandemic, companies were hit with an economic downturn that’s now resulted in a recession in the UK.

In this economic context, teams are being forced to do more with less. This means onboarding with reduced manpower, delivering ground-breaking marketing campaigns with less budget and mitigating outlay in the middle of a cost-of-living crisis. Being nimble and streamlining operations has never been more imperative.

That’s where automation comes in. While automating before the recession would’ve been the ideal scenario, it’s never too late to get ahead of competitors. It’s only a matter of when – not if – automation becomes standardised, as businesses insistent on using legacy tech and manual processes will be outpaced by those savvy enough to embrace smarter alternatives. In fact, it’s predicted that in just two short years, 70% of large global enterprises will have over 70 hyperautomation initiatives.

For finance teams and the tech-strapped CFO in particular, automation can be a saving grace. Tech stacks are more complex than ever due to the proliferation of specialised finance SaaS applications for quote to cash, Accounts Receivable & Accounts Payable (AR / AP), cash management, tax, accounting close and corporate performance management. Having the tools to automate these processes enables modern CFOs to adapt to changing tech needs, scale quickly and future-proof their organisations.

Automating today to prepare for tomorrow

Too often, automation is viewed as a job killer. We’ve all heard the apocalyptic narratives about ‘robots taking over,’ but that’s an outdated notion. Instead, automation is a job enhancer. Not only does it minimise errors, speed up processes and help businesses cut down on admin, it liberates employees to dedicate their time to be more creative or perform complex tasks.

Take a company like WeTransfer, for example. Bogged down by manual processes, the team struggled with closing financial books and completing billing cycles on time. After integrating its tech stack, quote-to-cash automation worked immediately and the time to close reduced dramatically, significantly reducing the hours dedicated to manual data entry.

Its revenue accountant was then able to work on core tasks in the finance department and alongside sales operations on the process improvements, no longer worrying about completeness issues associated with the sales and financial systems integrations.

Not only that, it liberated employees physically and unlocked access to more valuable talents. Beneath all the technical and monetary benefits, these are the core principles behind why automation will soon become impossible for firms to ignore.

Physical Liberation

Hybrid work has been one of the biggest positive developments driven by the pandemic. However, while employees surely won’t miss long commute times or the constraints of office life, a disparate workforce comes with challenges. It’s vital that organisations can trust their data and business processes in order for effective collaboration to be possible.

Automation can enable this, as it allows cloud-based systems to share data across a business through integration, ensuring all workers have access to the resources they need to work together effectively wherever they are.

This makes businesses nimble, able to operate across multiple locations when needed and well equipped to decouple entirely from headquarters if needed. Workers can then be as effective from home as from the office, ensuring they can maintain a better work-life balance without compromising productivity.

It’s no wonder then that 78% of organisations worldwide think remote working will increase the proportion of their workforce using automation, while over two-thirds (71%) that have already implemented automation are beginning to feel the benefits.

Liberating Talent

Automation also ensures talent is no longer wasted on manual tasks. 3 in 5 (60%) occupations could technically automate more than 30% of their tasks, highlighting the bevy of possibilities and offering a glimpse at the future of work.

When workers spend their time crunching numbers and organising spreadsheets, it’s easy for them to feel like a cog in a machine. With automation, however, they have more room to share their ideas and feel connected to the operations of the business.

With menial tasks taken out of their hands, employees are freed up to perform more complicated and creative jobs, the sorts of work that could never be automated. And by filling workers’ days with more of these engaging responsibilities, they’re able to feel like they have a real stake in the company’s success.

There is also research to suggest that workers can get as many as 100 hours a year back as a result of their manual tasks being automated, meaning everyone could get an extra two weeks of paid leave without productivity taking a hit.

Automating into the future

Already, over 80% of organisations self-report increased or continued investment into hyperautomation initiatives. So the appetite is there, now comes making it a reality.

Automation at scale is the dream, but the transition won’t happen overnight. In a perfect world, organisations will be able to assign all manual and tedious tasks to the machines, with employees only needing to provide oversight when necessary, but there’s a journey to get there.

That’s why it’s critical that CFOs collaborate closely with their CIOs. Only then can we realise a scenario where manual processes are eliminated entirely, and data across systems can be accessed and updated in real-time. But this will require leaders to understand each other’s needs and challenges so they can align their visions.

As organisations become more disparate, this partnership will only grow in importance. CIOs can empower the CFO and their teams to implement the automation initiatives best for them, with IT maintaining oversight to ensure compliance.

With the right structure and mindset, CFOs and the entire C-Suite can be encouraged to pursue digital transformation in a way that’s most effective for them and the entire organization.

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