A Risk-Based Approach Ensures Success

Have you considered selecting trades for their potential risk rather than their prospective profit? This approach may sound counter-intuitive but a risk management plan should be at the forefront of all traders' minds. A risk-based approach is where risk management dictates how trades are selected. After all, It is hard to make money if you are losing it all first! Keeping hold of your money is something Warren Buffet lives by.

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  • eToro.com is a reputable trading platform, famous in the social trading industry. In 2018, the brand decided to conquer the US market and launched the local brand there. First, the company functioned solely as a crypto trading broker. Yet, later it added other items to its list of tradeable assets. Therefore, now it offers stocks and ETF trading as well. 

    With a history dating back to 2007, eToro has amassed a large user base across more than 140 countries. When cryptocurrency emerged, the brand used a unique chance to enter the American market.

    One of its key features is CopyTrader, the social trading tool and a proprietary product of the project. It allows novices to repeat trades from top traders with just a few clicks. Thus, the tool offers a fresh approach to this asset class.

    This guide aims to provide a comprehensive eToro review to help traders make informed decisions.

    etoro USA

    eToro offers trading services across many regions worldwide including the USA

  • OANDA (www.oanda.com) boasts of a high level of trust and reliability, as evidenced by its impressive Trust Score of 93 out of 99. While OANDA is not a publicly traded company nor does it operate as a bank, it is subject to regulation by seven Tier-1 regulators, signifying a highly trusted status. Additionally, it is supervised by one Tier-4 regulator, which means that users should utilize a cautious approach to risk management.

    OANDA Corporation is regulated by the CFTC/NFA. OANDA is a member Firm of the NFA (Member ID: 0325821). CFDs are not available to residents in the United States.
  • A standalone copy-trading ecosystem, providing equities, foreign exchange, commodities and cryptocurrencies markets. Provides a global selection of brokerages.

Why does it ensure success?

A risk-based approach prioritises risk over profitA risk-based approach requires a trader to identify, assess and understand the risk to which they are exposing themselves to. In effect you are looking to minimise risk in each trade. As opposed to focusing uniquely on profit. This requires learning to take the appropriate steps to reduce risk to an acceptable level. Diversification is a perfect example! Taking positions which are only 2% of your portfolio is advisable. If the trade goes wrong, you have only lost a small fraction of your total portfolio. There are also practical implications of a risk management approach. With multiple threats to your trading profits it is useful to keep a critical eye. Your future profitability as a trader will depend on your ability to manage risk.  A successful risk management process will reduce losses to a small and affordable total amount. This will ensure profitable trading!

Identify the key risks

In any risk-based approach, you will need to identify the key risks to your trading strategy. This could involve:

  • Trade size
  • Volatility
  • Leverage and its funding cost
  • Geo-political risks

Once key risks have been identified, any aspiring trader will need to develop risk mitigation skills. These will involve soft skills such as controlling your emotions and having a disciplined approach to trading. Emotions can be troublesome as you allow outside events to cloud your judgment. Discipline ensures that outside events, such as emotions do not negatively influence your decision-making ability.

Keep it simple

Keeping it simple in a risk-based approach helpsAny risk-based approach means keeping things simple. The more complex a trading strategy the bigger the risk of something going wrong. You need to decide if more complicated trades are worth the potential profit and risk involved. As a rule, less is more!

Record your errors

How can you learn from your mistakes if you don't recognise and record them? Learning which risks cause the biggest losses will help you mitigate future risk. This approach will ensure you learn to take small risks which in turn produces regular profit.

Prioritise trades

The meaning of a risk-based approach also consists of knowing which trades to prioritise. This applies to a trading opportunity which may be different from your strategy. A trade with a smaller return, is often more worthwhile than a new kind of trade which promises larger returns. It is best to focus on learning to trade one type of security perfectly, than several imperfectly.

A risk-based approach is an ongoing process

A risk-based approach requires constant workAs part of a risk-based approach to trading you will have identified key risks to your trading strategy. The more you trade, the more you will learn about the weaknesses in your strategy. This will highlight new risks which will need to be assessed. Learning to monitor these new risks will allow you to strengthen your risk-based approach.

It is not someone else's job

Risk mitigation planning is not something you should expect someone else to do. You must do it yourself. If you do not know the risk you are taking you cannot mitigate it. In a risk-based approach you should be just as excited by finding and reducing a risk, as you are finding a profitable trading opportunity.


The primary advantage of a risk-based approach is to steer traders towards good trades and away from bad ones. Good trades are profitable with only a small amount of risk taken. Bad trades create huge losses where the profit was insufficient for the risk taken. Too many traders pursue profits without realising the downside. A risk-based approach is a state of mind - it means you will see the risk first and the opportunity second - ensuring success!

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