How to Manage Risks in Today’s Financial Markets?

How to Manage Risks in Today’s Financial Markets?

​From the broad market perspective, high qualified and experienced traders always perceive risk as reward. There are much more ways in investing the financials of the today's markets, accompanying with this situation, there are many question marks are emerged in the investors' mind and especially decision taking process of an investor is getting much more harder than past, because an investor who expects optimal return of any financial transaction should be mentally well prepared and proactive. Therefore, risk management dimension of the markets is coming first for every investor who wants to understand the nonlinear structure of the market atmosphere.

​In general, before taking their investing decision (currency, option, gold, stock, fund or something liquid as), macro-economically the traders look for fundamental indicators as economic growth, inflation rate, unemployment level, interest rates (monetary policies of central banks), current account deficit, outside trade deficit, housing starts, consumption expenditures, gross domestic product, balance of payments, fiscal capacity, etc. 

But, these indicators are just seen part of the case. Mainly, the risk management part of the investing decision is shaped by these quantitative variables, from the other side of the fact, these parameters are formed by human beings who are diversified according to culture, life styles, demographics or such as… Therefore, human conduct is the mostly weighted factor of risk management in market environment. But, here the matter is how to quantify this factor. 

Maybe, it is impossible to generalize and show as mathematical models of the market trend or behavior because of the human factor, but from the theoretical frame there are many quantitative models to show how to invest in financial markets, thus there is a bit of conflict may be seen between application and theory from the point of fence sitters. 

Commonly, in application the risky and chaotic structure of the financial markets scared the investors, because of the human nature as always human beings value avoiding pain or loss, more than getting pleasure or pain… Therefore, the economics as science steps in to the investing decisions of the traders and the investors can be smoothed themselves by using general theories of economics, but they must not forget to integrate the qualitative and actual part of the markets in to the risk management process, if they do this kind of mistake, they will find themselves really in big trouble. 

Because of the above mentioned reasons, economics is not just a kind of science like math or physics which a person can define, understand and solve the problem; it is not as simple as trigonometry or gravitational rule. Maybe, the funny part of the economics is this, because this science covers both physical and social sciences. {seog:disable}

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Comments (1)

  1. Özkan Özkaya

Yes, you right. Economic is a social science, and it's effected by human behaviour. Thanks for your article...

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