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.
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