#RiskRewardRatio

These are complex financial instruments and come with a high risk of losing money quickly due to leverage. You should consider whether you understand how contracts for difference work, and whether you can afford to take the high risk of losing your money.

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Understanding Risks and Rewards

Lesson 2 of 4

Balancing Risks and Rewards

As we know, trading involves the risk of loss. Therefore, in any trade, you need to ensure that the risk-to-capital ratio is justified in relation to the potential profit.

Point three: Calculate your risk-to-reward ratio

You can use the risk-to-reward ratio to measure the value of a trade:

Your risk-to-reward ratio is the amount of risk you take in a trade compared to the amount of potential profit.

This is an area where many new traders stumble. These traders start believing that they have to 'beat' the market or 'predict' what other traders are thinking in order to make their trades more profitable.

There is only one problem with this regard: it is impossible to predict the future, no matter how knowledgeable or experienced you are.

Thus, instead of focusing on achieving more profit, professional traders typically focus on the risks, ensuring that any pound or dollar risked as capital is worthwhile .. ..