Glossary entry
Risk management is the ongoing process of identifying exposures, setting limits, preparing responses, and reviewing outcomes. In investing it can include position sizing, diversification, liquidity reserves, hedging, and operational checks. The objective is to keep possible losses and uncertainty consistent with a plan, recognizing that risk controls involve tradeoffs and cannot guarantee results.
Illustrative example
A trader sets a maximum position size, records planned exits, and checks aggregate exposure before adding a trade that shares an existing market risk.
What to consider
A written rule helps only if it is feasible and followed. Stops, models, and historical estimates can fail in stressed markets.
General information, not a personal recommendation. Product availability, rights, and obligations are determined by the relevant provider, jurisdiction, and approved agreements.