Article Calculating Risk and Reward

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Dec 19, 2004
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Are you a risk taker? When you’re an individual trader in the stock market, one of the few safety devices you have is the risk/reward calculation.
Risk v Reward Sadly, retail investors might end up losing a lot of money when they try to invest their own money. There are many reasons for this, but one of those comes from the inability of individual investors to manage risk. Risk/reward is a common term in financial vernacular, but what does it mean? Simply put, investing money into the markets has a high degree of risk, and you should be compensated if you’re going to take that risk. If somebody you marginally trust asks for a $50 loan and offers to pay you $60 in two weeks, it might not be worth the risk, but what if they offered to pay you $100? The risk of losing $50 for the chance to make $100 might be appealing.
That’s a 2:1 risk/reward, which is a ratio where a lot professional investors start to get interested because it allows investors to double their money...
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