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Popup 2

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Discover the features of Performance Analytics

1.Trading Plan

Take advantage of Trading Plan and the suite of tools from Performance Analytics to track, measure and monitor your trades according to your goals.

2.PlayMaker

Get real-time feedback to make sure you stay on track with your trading strategy. PlayMaker helps you to reduce costly mistakes and improve performance.

3.Review

Review is part of Performance Analytics, giving you a comprehensive view of your trading to develop a deeper understanding and how you could improve it.

4.GamePlan

GamePlan is a feature of Performance Analytics. Discover unique insights that can reveal your trading strengths and weaknesses with our exclusive technology.

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How to manage trading risk

Your trading strategy can go some way to mitigating your risks. For example, day trading is a popular way to avoid the risk of gapping, while position trading isn’t concerned with the smaller movements of volatile markets anyway

But there’s no such thing as a perfect strategy. All you can do is learn about the risks you might face and manage them as best you can.

Managing risk isn’t a “one and done” process. You’ll constantly be tweaking and adding to your risk management toolbox as you learn more about what suits you and your strategy

Here are a few helpful tips to get you started.

Prepare, prepare and prepare some more

Research is one of the most overlooked ways of managing risk. Being caught unawares by a market-moving event can quickly turn a winning trade into a losing one.

To help you stay on the pulse of these events, we’ve got some useful trading tools available.

• Economic calendar-this lists the dates of major events and statements, including central bank decisions, economic data and public holidays
• Company announcements-knowing when a company is releasing its financials is vital if you focus on shares
• News and analysis -discover new opportunities with our experts’ actionable insights, de-signed to help you cut through the market noise.

Use stop-loss orders

A stop loss will automatically close a trade if the price falls below a level chosen by you.

This means you don't need to constantly monitor your positions, and it prevents you from being tempted to let your losses run.

You set a price, and should the market price fall below it, the trade is closed automatically.

Stop losses are free to add to your position. On the deal ticket, you simply select the stop loss box and enter your desired price. Should you forget to add a stop loss, you can always attach one once the trade has been opened

Beware: as we’ve already seen, it’s not always guaranteed that your stop loss will close at your chosen price due to slippage and gapping risk. If this happens your stop loss will execute at the next best available price.

If you want the assurance that your trade will be closed at the prescribed level, you can use a guaranteed stop loss. They’re free to attach, but you’ll be charged if they’re triggered.

Another alternative is a trailing stop loss. This ‘trails’ your position by a certain number of points. It’s great for ensuring that you lock in profits if the market moves in your favour but closes your trade if the market moves against you.

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How does a trade get executed?

The trading market and the derivative you're employing will determine how a trade is executed. Basically, though, as soon as you confirm your trade, we'll see if the price you selected is still available. We'll notify you when the trade is active on our platform as soon as we've verified that we can carry out your request in accordance with your requirements. This will occur in less than a second in more than 99% of cases.

How long does a trade take to execute?

With BLUEBIRD, the average trade will execute in just 0.05 seconds, which is the amount of time it takes for us to receive your order and initiate the trade on your behalf. 99.99% of all trades are successfully handled, and 99.83% of trades are executed in less than a second.

What is slippage?

When an order is executed at a price lower than what you indicated, it is referred to as slippage. Slippage occurs when an order to buy the FTSE 100 is placed at 7500 but it executes at 7502, for example. This is because you have purchased the underlying market at a price higher than your order. In rapidly fluctuating markets, slippage may transpire when prices surpass the level displayed on our platform prior to our being able to carry out your transaction. Limit orders and guaranteed stop loss orders are two strategies you can use to reduce the risk of slippage in your trading.

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What is an advanced trading strategy?

An advanced trading strategy is a way to build upon the existing rules you’ve got in place.

While a basic strategy might be easier to understand and deploy, an advanced system looks at more complex data and signals to enter and exit positions.

The driving force behind moving toward a more complex trading strategy would be if your current rules need improvement, you’re looking to move into new markets or you just want to challenge yourself.

Building an advanced strategy usually involves opening multiple positions to achieve a goal or using additional indicators and patterns to confirm entry and exit points. Advanced strategies might even include trading using instruments that are often deemed too complicated for beginners, such as options.

An advanced strategy isn’t necessarily better. Sometimes the more simplified trading strategies have equally good outcomes. You’ll need to weigh up how much time you’re putting into a strategy to the returns you’re getting from it.

Over the next few lessons, we’re going to look at the different tools and instruments that traders use as the basis for their advanced strategies.

But up first is the most widespread advanced strategy, hedging.

Hedging explained

Hedging is the practice of opening multiple positions to reduce the impact of adverse price movements, either completely or to a known amount.

Hedging is considered an advanced strategy because it involves having a number of trades open at once, using various instruments and understanding the correlations between markets.

Most hedging strategies use derivatives, such as CFDs, options or futures, all of which we’ve covered .

Say, for example, that you are invested in shares – but worried about an impending downward move in a stock you hold. You could short the stock using a derivative and profit if the underlying market declines. This would potentially offset any loss to your investment.

Why not just sell your investment? Well, there are tax implications for closing your position. And if you want to hold onto it long-term, it can be more beneficial just to hedge.

For example, if your strategy has a delta of one, then for every $1 move in the market, your derivative will also rise or fall by $1 in the opposite direction.

Most hedges won’t remove risk completely, but they do limit it. A strategy that completely offsets risk is known as a ‘perfect hedge’.

It’s important to remember that hedging isn’t free. You’ll be paying more money to open more trades, which means the costs can stack up against you if you’re wrong. You’d need to decide whether you’d rather take on the hedging costs or have an unknown risk against your capital.

Hedging example

You buy 100 shares of Company ABC at £20 per share and decide to hedge your investment by buying a put option with a strike price of £18 expiring in one year. This gives you the right to sell 100 shares of ABC for £18 any time in the next year.

Let's assume you’ve paid £1 per share for the option, a total premium of £100 . If one year later ABC is trading at £30, you wouldn’t exercise the option because your prediction was wrong. You’d have lost £100 on the option.

Although your hedge was unsuccessful, the loss would be offset by the gain to your shareholding, which would give you an unrealised profit of £1000 – or £900 once you’ve subtracted the premium.

If, however, ABC is trading at £10 at the end of the year, you could exercise the option and sell your shares for £18 each. Your proceeds from the sale would be £1800.

If you’d had to sell at £10 instead, you would have only recovered £1000. So, including the cost of the option, you’ve reduced your loss by £700.