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I recently went on a trip overseas, and as part of my preparation of going I bought travel insurance. Why did I buy travel insurance? Of course, to reduce my risk of financial loss as a result of any loss, sickness or misadventure. As a trader there are avenues to reducing your trading risk. There are many ways to reduce your risk when you trade. The simplest method is by limiting the amount of capital at stake. The next simplest is by utilising a stop loss, or better yet a guaranteed stop loss. If you want to hedge your position in some currency you can either use forwards or options. If you like to get your hands dirty, options can provide you with an advanced strategy to reduce your trading risk.