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CFDs are complex instruments. 72% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. CFDs are complex instruments. 72% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Beta definition

A financial instrument’s beta is a measure of its risk or volatility when compared to the wider market.

It is mainly used in the capital asset pricing model (CAPM), a popular financial model used to balance the inherent risk of an instrument with its expected return. More volatile markets are capable of providing higher returns, but are also riskier to invest in.

Beta is listed as a scale. If an instrument has a beta of one, its volatility matches that of its wider market. If its beta is less than one, it will be less volatile than the wider market; if it is greater than one then it will be more volatile.

Beta is calculated based on past form only, taking into account the historical volatility of the instrument and comparing it to the wider market.

Beta example

In shares trading, shares will often have beta below one. Utility stocks, for instance, tend to be more resistant to market moves and will as such tend to have low beta. On the other hand, highly volatile start-ups or technology companies will often have a beta well in excess of one.

Read our guide to risk management

If you’re interested in how to manage risk when trading, read our guide to risk management.

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The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. 72% of retail client accounts lose money when trading CFDs, with this investment provider. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money.

CFD Accounts provided by IG International Limited. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority.

IG provides an execution-only service. The information in this site does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.

The information on this site is not directed at residents of the United States and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

IG International Limited is part of the IG Group and its ultimate parent company is IG Group Holdings Plc. IG International Limited receives services from other members of the IG Group including IG Markets Limited.

Beta definition

Beta example

Read our guide to risk management

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