Trading risk

What does risk mean in trading?

Risk in trading or investing is the probability of losing part or all of your initial investment. On the other side is the potential reward, the profit you could make. In general, we say that the greater the risk, the greater the potential reward or return on investment.

However, traders and investors are always looking for an edge, a way to get a greater reward or to take on less risk. To get a greater reward, they may look for ways to increase their leverage. To reduce their risk exposure, they may use stop-loss orders or a hedging strategy. Because risk represents uncertainty, it is the variable part of your overall trading cost, but on Nadex, you can define the limits of that variable cost.

Risk management is the most important part of your trading strategy

The key to consistent success as a trader is to keep your losses smaller than your profits. It is generally easier to limit or manage your maximum possible loss than to determine your maximum possible profit. On Nadex, you can set your maximum possible risk down to the dollar before you place each trade. The amount you pay to enter the trade is your entire risk. You cannot lose more than your initial trade cost.