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

SCENARIO PLANNING AND TESTING

Each trading business has its unique set of continuity risks. Individual traders may have a small setup in their home while managed funds can have multiple offices and cloud computing data server structures. Regardless of the entity shape, size, and number of employees, testing your risk mitigation exposures using scenario planning techniques in some form or another should be completed.

Some perform scenario tests with consideration of what can happen. In the example discussed earlier, a lightning bolt struck a house. This form of scenario planning is effective; however, it can be quite cumbersome and omit some events that are currently considered unrealistic and outside the box. Of course, when they occur, they become inside the box, and the lessons-learned process can be quite a costly one. Rather than assess the event, consider the asset, tool, data, resources, or time value and its importance and impact to your business. You might think your computer or system platform is the most essential part of your business. If so, it probably should be up there at the top of the list of critical assets. Of course, if your data connection has failed, it does not matter how advanced your computer or platform is because there will not be any trading being conducted when the Internet or other cable connection is lost, barring a backup plan.

Brainstorm uncommon scenarios such as your physical ability to perform your trading. I never realized how important my index ...