This refers to how much risk a trader is willing to take to fulfill their goal. Investors’ risk tolerance will be regulated by their income, goals, age, and so on. Some investors are willing to take high-risk. Some are willing to take low-risk. On the other hand, some prefer moderate risk. Most of the young people having a longer time horizon prefer high risk. On the other hand, aged people with shorter time horizon prefer lower risk. As a trader, you have to secure your deposit. Without the capital, you cannot trade. So, you need to take risk what you can afford. There are three types of investors such as combative investor, conventional investor, and medium investor who have different types of Risk tolerance preference.
They know the Forex market properly. They know how to execute their plan. As an investor, they prefer to take high risks. They believe that by taking high risk they can make lots of money. This is true that without taking a high risks, you cannot able to make more profits. They are spontaneously willing to risk their money to get a high return. High-risk tolerance is linked to equities. On the other hand, lower risk tolerance is related to the bond funds. The investors who have a good income, they can take more risk. This does not depend on the age of the investor. This depends on how much risk they can tolerate. They can be said aggressive investors because they act aggressively to make profitable trades.
They prefer to take a lower risk. Most of the time, golden-ager who have already in the market for 10 to 12 years are called conservative investors. They want to secure their capital by taking a small risk. They have already made a good deposit, so they do not want to lose this. This is the process of reducing costs. They prefer stocks that are highly liquid and also choose money markets, U.S. treasuries to preserve their deposit. When a beginner start his or her journey in the market, they try to take a high risk to make more money. In the end of the journey, they understand the market. Fear of a great loss hinders the aged people to take a high risk because they have already made a large amount. They can be also called conservative investors as they cannot tolerate aggressive risk. Smart investors at Rakuten Securities Australia never believes in aggressive approach. Act like them and you will be able to succeed at trading.
They prefer to take moderate risks because they want to make money and as well as secure their capital. They try to maintain their risk to reward ratio 1:2. For example, if they set stop loss at $500, they will set their take profit at $1000. So, the risk-reward ratio will be 1:2. Firstly, trader needs to determine how much risk they can take in opposition to how much reward. They embrace a balanced approach for their trading. These businessman are staying between the combative and conventional investors. They are also called moderate investors.
There are some risk-lover in the Forex market, who love to take risks. They take risks by knowing the reward will be less than the risks. They are not bothered about it. Most of the time, they take additional risks. These types of trader do not go in the wrong run. As a trader, this is necessary to develop risk management skills. If you cannot do so, your technical knowledge will not able to save you.
Forex market is not a game. This is the big place where many traders trade. So, when you are thinking about taking the risk, make sure how much you can tolerate. Fresher should not take high risks because they do not know about the market. Experience will help to decide how to manage your risk.