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An Introduction to Trading in the Financial Markets: Market Basics by R. Tee Williams

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Introduction

Risk management may well be one of the more confusing topics commonly discussed in the trading markets. Confusion arises because there are so many different definitions of what is meant by the term “risk.” A senior executive at a major investment bank described an attempt by his firm to come to grips with the firm’s exposure to different types of risk in the aftermath of a very large loss as a result of trading in a security. The size of the loss caused the firm to reevaluate its exposure to the markets and to attempt to categorize the types of risk to which the firm was subject.

Apparently, the total number of different types of risk exceeded 20. The person describing the activity suggested that each different type of risk identified ...

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