Risk analysis is as critical as market analysis for traders to make informed trading decisions. It helps them size each position adequately, set viable entry and exit points, and hedge risks.
A brokerage that enables traders to seamlessly manage risks by embedding risk management within the trading environment enjoys multiple benefits, such as:
– Improved conversion rates from demo to live accounts.
– Reduced trader churn, since all facilities are available on a single platform.
– Informed trading decisions that translate to enhanced trader activity.
– Customer loyalty due to powerful yet easy-to-use features.
– Differentiate your brokerage from the competition.
– Here’s a list of the top risk metrics your traders will thank you for.
Risk-to-Reward Ratio
This is a critical metric that helps traders quantify the loss-to-profit tradeoff associated with each trade. They use the risk-reward ratio to allocate capital to each position. It further helps traders set stop loss and take profit limits for each position they open.
Profit/Loss Ratio
This is the ratio of trades won to those lost. This type of historical analysis helps traders evaluate their trading strategy. The P/L ratio, combined with the hit rate, helps them decide their risk tolerance limits too.
Sharpe Ratio
Another critical measure is to compare the returns against the risk taken. This helps traders decide if they have the capacity to tolerate the volatility of a riskier asset and the benefits of taking on that risk. Traders can also use it to backtest a custom indicator.
Risk of Ruin
This metric informs traders of the overall payoff ratio, percentage accuracy, and percentage risk per trade. It is an essential statistic that shows whether the trading strategy is good enough to yield profits or whether it could eat away the trader’s capital.
Alpha
Alpha is the performance of an asset against the benchmark for a given timeframe. Traders use it to gauge the active risk of trading a particular asset.
Beta
Beta is one of the most widely used metrics to compare the volatility of an asset or a portfolio with that of the market. It helps traders measure the passive risk that arises from factors other than their own activities, such as market movements or news events.
Correlation Coefficient
This is the measure of the relationship between two assets. It helps traders identify whether any two assets are strongly correlated. In this way, this metric uncovers whether there is a need to diversify or take hedging measures.
Hedge Efficacy
This is another measure that informs traders of the extent to which a hedging position offsets the cash flow risk of the position being hedged. This metric helps traders assess the efficacy of their hedging strategies and manage their risk exposure more accurately.
Volatility Reports
Volatility reports per hour, day, and week help traders identify trading opportunities, which could boost trader activity on your platform.
A Final Word
Clear determinants of risk exposure and appropriate risk control measures, such as stop loss and take profit, help boost trader confidence, which, in turn, enhances trader experience. A brokerage that provides such trading metrics and usage guidance stands to improve trader acquisition, retention, and activity.
Choose a trusted and experienced technology partner equipped with financial market expertise across asset classes. Autochartist is a leading trading toolkit provider, helping brokerages across the world improve their trader experience. Our proprietary, API-based pluggable risk management toolkit is equipped with volatility analysis and risk estimation plugins, which can be easily integrated into your platform.
Also, this toolkit enables you to send out valuable market-related emails, customised to the aesthetics of your platform. Such informative content prevents traders from becoming dormant with real-time analytical reports that highlight trading opportunities and engage them more effectively. Schedule a demo today with Autochartist to augment your platform with state-of-the-art analytic tools to empower your traders with better decision-making capabilities.