Risk management entails a set of solutions to minimize the risk of losses when trading on financial markets. Since all brokers strive to increase profits and attract new customers, it’s almost impossible to succeed without proper risk management
Risk management in a broker’s work
A trustworthy broker does not only hedge risks on time, although this is a vital component, without which a financial institution can’t be considered reliable. Technological development also plays an important role. The introduction of new risk management tools protects both clients and the broker, preventing them from going broke due to unexpected market movements or strategic mistakes. Since it’s not always advisable to maintain your own development team, it is more cost-effective for a broker to turn to a technology supplier with ready-made solutions.
Overview of the main risk management tools in Metatrader
- Plugins for working with leverage. Dynamic Leverage allows the broker to calculate the amount of leverage for traders’ individual positions (i.e., for major and exotic currency pairs).
- StopOut plugins. Extensions for the forced position closing at the current price. Required for a client not to lose all the funds.
- Dealers. An automated trading tool based on current market conditions. The broker establishes the strategy himself.
- Spread management solutions. Plugins for temporarily increasing or decreasing the spread. The broker himself determines when the system will adjust the spread. For example, the spread can be increased when the price moves slowly.
In their original form, the Metatrader 4 and 5 platforms have limited functionality, available only in the basic form without extensive features, which does not allow the full use of risk management. However, this environment has an important advantage – compatibility with third-party extensions. Both Metatrader 4 and Metatrader 5 tools are instruments and plug-ins released by technology providers that integrate with the platform.
Risk management is the foundation of a broker’s profit
Risk management tools have a significant impact on a broker’s development. Firstly, advanced functionality allows you to fully control risks and minimize losses. The more components of a financial transaction are under a broker’s supervision, the easier it is to regulate them. Secondly, thoughtful risk management solutions increase the number of user transactions and trading volume, and these factors directly affect the broker’s profit.
Instead of a conclusion
There are many risk management solutions. For example, there are three highly experienced companies in Russia alone that develop them: B2Brokers, Takeprofit Tech, and Tools 4 Brokers, offering 200 risk management products. What is the minimal required set of solutions? It’s always customized. So, if you are an STP broker, your minimum will include an aggregation and a liquidity management solution. If your model is a B-book, then dealer solutions are the answer.