What is the ratio of reward for risk?
Risk ratio is to calculate investment traders to assess how risky the transaction is before buying. The calculation of the ratio is usually relatively straightforward and requires only the amount of money at stake, expected reward and potential losses. The main objective of the ratio is to provide investors with a numerical representation of whether potential investment is worth costs. Investors who take time to calculate can avoid transactions that may seem good on the surface, but are likely to lead to great losses over time.
Understanding the relative risk of financial transaction is generally considered necessary for success in the investment market, whether in shares, bonds or indexed funds. While some investors are lucky blindly in choosing transactions, this practice is more similar to gambling than justified investment. Squi investors generally seek to understand how the supposed reward compares to the risk of increne. This is the object ratio of the Risk Raten.
Risk ratio is usually expressed numerically on the basis of currency units. For example, $ 100 (USD) invested in a fund with a potential return on $ 200 (USD) would be expressed as $ 100: 200 or 1: 2. The 1: 2 ratio is usually considered to be the lowest possible "safe" ratio of most major financial advisors in the world. The higher the reward, the better the final investment. The same $ 100 (USD) invested an account with an expected yield of $ 500 (USD), for example, it would bring a 1: 5 reward ratio, which is much more favorable.
It is usually the hardest to calculate the part of the "reward" ratio of the risk of reward. The supposed reward is usually determined by a close analysis of stock charts and previous trends. There is a certain science involved - mostly statistical and standard deviation calculations - but many reasor's children are required predictions of NEDs and probability accounting. Financial predictorsSoftware monitoring and technological trends can be useful when arriving with these numbers. Investors also spend time reading and studying the market health in the target sectors.
There is also a certain risk of risk. Initial risk may not always be an initial amount of money. Investors often decide to purchase their investments with connected "Stop Loss" orders. These orders basically download funds and stop trading as soon as the losses hit a certain bottom. Investors can play with their floor stopping loss and change the ratio, which can help determine the outlines of the final investment.
Even the ratio of the risk of reward, which gives potential rewards up to 500%, does not guarantee high returns. Market changes and prices are constantly falling in an unexpected way. Everything that says the ratio of reward risk is that the investment is more likely than it does not give a favor of return. This means that it is a good bet for an investor, but there is nothing a certain agreement.