Marko Jovicic Posted May 25, 2020 Share Posted May 25, 2020 Can you briefly explain the concept of risk and return? Quote Link to comment Share on other sites More sharing options...
0 Brundle Mark Posted May 25, 2020 Share Posted May 25, 2020 Hi Marko, thanks for your question. Risk and return is one of the most basic concepts in the stock market. As such, understanding of this method is an absolute priority for anyone who intends to become a trader or investor as practically everything starts and ends with the risk and return. The risk calculates the chance of failure in reaching objectives or goals. On the other hand, the return is what you hope to get when achieving your goals. Hence, these two have correlated relations as you want to lower the risk and maximize the returns on your investment. For this reason, investors calculate the return on investment (ROI) to calculate the amount of return on a particular investment. This is the most basic formula to calculate the ROI: ROI = Current Value of Investment − Cost of Investment Cost of Investment Following types of risk can be found in the investment process: There are a number of risks that you should consider when deciding on your investments: Investment market risk Investment specific risk Market timing risk Inflation risk Interest rate risk Legislative risk Liquidity risk The risk-return ratio is measured to see how much risk you get for each dollar that you invest. For instance, you are investing $100 in an X stock. A move in stock price to $90, would lose you $10. On the other hand, you would be happy to close the trade if the stock price reaches $120. Hence, your R:R is 1:2 as you are risking $10 to make $20. Quote Link to comment Share on other sites More sharing options...
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Marko Jovicic
Can you briefly explain the concept of risk and return?
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