Brokerage tools to manage market risk
In the next chapters, we’ll focus on tools that can help you tackle market risk - mainly because it’s the most common type of risk. Some of these tools, like price alerts or news feeds, are for those who prefer a hands-on approach and closely follow the market for clues to make their next move. Others, such as stop-loss orders, are for those who need an ever-present safety net. And then there are asset types - mutual funds in particular - that come with built-in risk management mechanisms, overseen by seasoned professionals. So let’s see these tools one by one, including tips on which brokers offer them.
Price alerts allow you to get notified - on your phone, your web/desktop trading platform or in your inbox - when the price of a stock hits a specific level. As a risk management tool, price alerts are useful if you want to prevent the price of a stock that you own from falling too much without you noticing. But you can also set price alerts above the current price, to signal a good profit-taking opportunity; or set it for stocks you don’t yet own, so you don’t miss out on a favorable entry price.
Price alerts usually aren’t too difficult to set up - a ‘watchlist’ menu point, a bell icon or a simple right-click on an asset will probably point you in the right direction. As handy as they sound, though, price alerts are not available at all brokers. So check the links below if the broker of your choice offers them.
The price of a stock can be shaped by how that company performs, what its competitors are up to, the general health of the industry it operates in, or prevailing overall stock market sentiment. To stay on top of all these and spot anything that could threaten the value of your investments, you could probably use a good news feed.
Online brokers are all over the place when it comes to news quality; ranging from absolutely nothing to basic third-party news headlines to sophisticated in-house market commentaries and news digests. Decide what you really need based on your time horizon and investment goals; if you’re a long-term investor holding broad-market ETFs, you probably won’t need a Reuters ticker on your smartwatch. With that in mind, check below what news services are available at some well-known brokers.
Stop-loss orders are basically price alerts taken to the next level. By setting up a stop-loss order, you instruct your broker to automatically sell some or all of your holdings of a stock if its price falls below a certain level. This helps eliminate the risk of a stock you own losing too much of its value simply because you don’t have time to react or aren’t aware of the decline in its price.
You can set a stop-loss order price anywhere you want, depending on your tolerance for risk. However, especially if you’re a long-term investor, it’s a good idea to set your stop-loss order a safe distance away from the current price; so that a temporary small price drop does not trigger the unnecessary sale of an otherwise great stock.
When you buy a stock, you can usually set a stop-loss price on your trading platform’s order panel, just before you press the ‘Buy’ button. Stop-loss orders are available at many brokers; see below if the brokers you’re eyeing are among them.
Mutual funds invest into a diverse set of stocks; so if you invest in a fund, it’s like investing into all those stocks at the same time. So what does this have to do with risk management? Well, being (indirectly) invested in a diversified portfolio can in itself lower risk, as any losses by a single stock can be offset by gains in other parts of the portfolio.
But mutual funds go one step further - they have a formal risk-management policy that is strictly followed, and which you can study before committing your money. What’s more, funds are actively managed by an actual fund manager and their team of analysts, bringing their professional risk-management expertise to the table.
Not all brokers offer mutual funds for trading, so browse the list below to check fund availability and trading conditions at some popular brokers.