Trading: Understanding Risk Tolerance

Tr a d i n g : BUSINESS

LegacyFX Introduction

UNDERSTANDING RISK TOLERANCE

TRADING: UNDERSTANDING RISK TOLERANCE

Risk tolerance is the term used to describe how an investor or trader approaches risk.

Risk tolerance is often based on the priorities of the investor.

Those with long-term investment

older people are more likely to opt

goals can often tolerate more risk in

for fixed income investments, while

the short-term, knowing that their

younger people are more likely to go

investments have a good chance of

for investments such as stocks and

reversing and becoming profitable

bonds which, although riskier, offer

over time.

opportunities for greater profits over

How Age Affects Risk Tolerance Age is often a key factor in the calcu-

the longer term.

How Capital Affects Risk Tolerance

lation of risk tolerance. Younger peo-

People with more liquid capital and

ple can naturally factor in a longer

a higher net worth will typically

time horizon for their investments,

have a higher tolerance for risk

especially when they are saving for

within each investment. Someone

their future rather than for an imme-

with £1 million to invest who places

diate profit. Opposingly, older peo-

£10,000 into one investment can

ple’s time frames for positive returns

afford to lose that money. Someone

tend to be shorter. Additionally,

with £10,000 to invest will more

many older people are more stressed

likely seek multiple smaller invest-

about risking their life savings as

ments or place their capital in some-

they are at the end of their careers

thing very low risk.

and typically cannot makeup the difference from any fallout. Therefore,

Someone with £1 million to invest who places £10,000 into one investment can afford to lose that money. Someone with £10,000 to invest will more likely seek multiple smaller investments or place their capital in something very low risk.

You can learn more about different types of trading and investment by visiting the blog of LegacyFX. To learn about one of the most trusted and transparent brokers in the industry, visit the official LegacyFX website.