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Risk Management

Now, having had some practice using real money in our fixed odds trading, we are ready to move on to some of the more advanced functions that you will find useful as you develop your style. These are all more advanced functions, so I would suggest that you become comfortable with the basics, before trying these for yourself. Remember the market will always be there tomorrow – there is no hurry!!

The first area I would like to look at is that of order placement. In our learning phase it is perfectly acceptable ( and I would recommend it initially )  that trades are opened manually and closed automatically on expiry. However, you can also open them using limit orders.

Now limit orders are very similar to those used in more familiar trading methods. Limit orders are orders to buy at or below a specified price. Buying a limit order allows you to place a buy order at a price (referred to as the limit price) defined by you at a price, which must be lower than the one currently offered by the pricing engine. In effect the limit order allows you to automate the buy bet which will be triggered if the criteria are met. All the other details of the contract are entered as before,  ( how much you want to win, the contract length etc ) but this time you specify the price at which the bet is to be bought. Imagine you are studying a currency pair, and believe that if prices fall below a support area then they will continue on downwards, but unfortunately you cannot be in front of your screen all day ( perhaps you are at work ) – then you can set up a limit order to trigger the trading position, should your target price be met.

Now, having said earlier that you do not have to worry about closing out trades, you can do so if you wish using a limit loss order. Naturally this is not available on all trades, it will depend on the market, the expiry and the contract period. Limit loss price orders are orders to sell a particular position at a price below the current market price. So even in a fixed odds trading environment, we have the option to manage or reduce our losses if we wish, but I must stress these types of orders are not available on all trade types.

Now, a further alternative is the “take profit order”, which as you would expect, are the opposite of limit loss orders. Take profit price orders are orders to sell a bet at a price higher than the current market price (i.e. higher than the re-sale price value of a particular bet) and are used to pick profits before the final settlement date. Again as with the limit loss orders, you can set these up automatically. Imagine you are placing a trade, and whilst you are happy with the direction of the trade, you see that on the chart there could be some support or  resistance when prices reach a certain point. In this case you might decide to add a take profit order to the bet when placing it, and specify a point at which you want the bet closed if this should be achieved. Take profit price orders are orders to sell a bet at a price higher than the current market price (i.e. higher than the re-sale price value of a particular bet in the portfolio section) and are used to take profits before the final settlement date.

The last group of orders are called market triggers, and as you would expect allow you to trigger a variety of actions including limiting losses, and taking profits early. The difference with these orders is that you can set up to three triggers per position, and they are introduced after you have opened the position, but as with many of these order types, they are not available on all trade types so you will need to check.