The risk disposition

The aim of risk management is to limit the overall risk as a proportion of the assets (more precisely: the book value of the assets, see below) and to control these limits. The risk contribution made by each managed position is defined by the ratio of a set limit to the initial investment. The limit therefore indicates the potential loss.

In total assets, which are made up of a liquidity portion and various securities positions, not all positions necessarily have to be allocated to risk monitoring. For example, funds or bonds that are considered safe can be excluded.

For the purposes of money management, such positions should be viewed in a similar way to liquidity. The positions that are to be monitored must therefore be marked accordingly on the securities page. This is done simply by setting a limit for a position, as the system takes into account all positions for which a limit has been set.

On the money side, the share of total assets that is subject to risk monitoring must be defined for money management ("Risk share of assets" field). A proportion of this amount is fixed, which should make up the maximum total risk for all investments under control. As a rule, this proportion should be around 10% ("Maximum overall risk" field).

The overall risk minus the risks of the positions already entered into is the remaining risk and indicates the scope within which new positions can be established or existing positions expanded.

The main restriction for an investment will therefore not only be the availability of liquid funds, but above all the risk limit.

The carrying amount

In money management, the valuation of positions differs from the normal asset overview. The carrying amount of an item is the value against which the reported risk exists. This means:

• For positions that are outside control, the carrying amount is the market value (similar to liquidity).
• For positions where the limit is below the cost price (i.e. positions with positive risk), the book value is the cost value. The risk of a position is therefore not changed by price movements, but by stop adjustments.
• For risk-free positions, the book value is the value of the position at the stop price, i.e. the hedged value of the position. This means that only the hedged portion of the market value (price must always be above the stop) is included in the book value and generates new risk capital.

The sum of the carrying amounts and the liquidity results in the carrying amount of the assets, against which all risk components are measured. This means that a total risk of 10% is defined as 10% of the book value.

The market value of the assets can be both below and above the book value (roughly in the order of the limits set).