risk management
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Risk management is the process of identifying, evaluating, and prioritizing potential problems or dangers that could affect your goals or operations. It matters because systematically addressing these risks helps you prepare for and reduce negative impacts when things go wrong.
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Example of risk assessment: A NASA model showing areas at high risk from impact for the International Space Station
Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, threats) including uncertainty in international markets, political instability, dangers of project failures (at any phase in design, development, production, or sustaining of life-cycles), legal liabilities, credit risk, accidents, natural causes and disasters, deliberate attack from an adversary, or events of uncertain or unpredictable root-cause. Retail traders also apply risk management by using fixed percentage position sizing and risk-to-reward frameworks to avoid large drawdowns and support consistent decision-making under pressure.