It’s no surprise to learn that emotions and biases affect decision-making, especially when it comes to risk.
Risk is a difficult word for many to swallow. Those unfamiliar with financial markets are usually surprised by their reactions to risk and uncertainty. But there are tools to help you deal with that risk. Here, we’ll explain what to expect and how awareness will help with better decision-making.
Understanding Your Risk Tolerance
In the old days, young traders starting in the pits of the futures exchange in Chicago were indoctrinated with a common saying, “Leave your emotions at the door!” The old guard believed emotions would interfere with the rational thought process of successfully trading. But this adage is easier said than done. After all, humans are emotional creatures. Instead of leaving them at the door, recognizing and managing one’s emotions is more effective than trying to suppress them. It’s natural to feel a sense of fear when jumping into an uncertain situation, and one thing that’s certain about markets is that they are, by nature, uncertain.
Successful traders manage their fear by understanding their risk tolerance. They know when to pull the plug on a losing trade, and they create a strategy before they enter the market. Traders can set an exit price should things go wrong and a take-profit price if things go right. They can’t control the market’s direction, but they can have a game plan for either direction.
How to Handle an Uncertain Market
A great hedger is like a successful defensive coordinator on an NFL team. He keeps the other team under control, so his offense can score. In hedging, the primary business is like the offense, and the foreign exchange (FX) market is like the other team. Hedging keeps the FX market effects at bay so the primary business can take the field and score profits.
Whether trading or hedging, it’s critical to understand what to expect with the market and its unpredictability. Being prepared means having clear expectations and knowing how your strategy will work no matter what the market does. We don’t know where the market will go, but we can understand what effect any move will have on our business. While traders are looking for profits, hedgers are seeking predictability. Hedgers use their market-based tools to eliminate or reduce the harmful effects of FX swings on their future revenues and profits.
For businesses that struggle to mitigate risk around foreign currency volatility, Pangea has a solution: Pangea Prime. The first custom-tailored, Ai-based hedging solution that makes forex hedging predictable and simple.
Pangea Prime allows your team to focus on what you do best. Rather than using your resources to try and time the markets, Pangea Prime gives you the ability to choose from a menu of advanced hedging strategies that are easy to understand, customizable, and quick to mirror market activity.
Schedule a demo today and get the predictability and control you deserve in your business.
Pangea Prime: Predictable, simplified FX management.
