The Risk of Trading: Mastering the Most Important Element in Financial Speculation

MEASURING SUCCESS THROUGH A KPI

You may recall being introduced to the key performance indicator (KPI) dashboard concept earlier in the risk management process section of this book. Here we will go one step further and custom build your KPI dashboard so you can manage your trade quality and compliance. A standard introduction in any Western world culture is simply, “How are you doing?” In the corporate risk world, different stakeholders want to know about their respective interests in areas of productivity, quality, compliance, and of course profits, to name a few. How do traders know how they are doing? How do they measure their success? How do they define success? I once had a trading group that told me that they use only one gauge to measure success: profits. “We really have only one goal and that is to make money for our traders and the company.” Do you use the same in how you measure your success?

The argument is quite valid given that you can't buy clothes for the kids with plan compliance measures nor pay the mortgage with risk-to-reward stats. The critical difference is to measure the components of your business that ultimately generate profits or whatever else your other goal in trading may be. Taking this approach allows you to take a magnifying glass to expose the strengths and weaknesses as a trader and set the stage to take the necessary actions to improve in a respective category, thus affecting the ultimate goal or desired outcomes. Measuring our decisions and other ...