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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
After purchasing 30 shares of Food Giant ABC at $50 each, you decide to set a stop loss at $45, and a limit order at $70. What is your risk vs reward ratio for this trade?
Explanation
Assuming there's no slippage, your maximum loss on this trade is $150 ($5 x 30 shares) while your maximum profit is $600 ($20 x 30 shares). That is a ratio of 1:4.
Say you buy 100 shares of Company XYZ plc at $40 each, but you don't want to risk more than $800. At what price would you need to set your guaranteed stop loss?
Explanation
If each of your 100 shares depreciated in value by $8 you would reach your risk limit of $800.
Match the following assets to the risk category they belong to:
Explanation
CFDs -> High-risk
Shares -> Medium-risk
Bank account -> Low -> risk
What is your trading capital?
Explanation
Trading capital is the amount of money you can dedicate to trading. It's vital that you don't risk more than you can afford to lose.
Which of the following is not one of the four main styles of trading?
Explanation
Position trading or investing is the other main style of trading.
Match the trading style with the amount of trading activity it involves:
Explanation
Scalping -> Very high
Day trading -> High
Swing trading -> Medium
Position trading -> Low
Which of the following statements are SMART goals?
Explanation
To be a SMART goal the figures must be specific, you should be able to measure your success, they ought to be attainable and relevant, and they need to have explicit timeframes.
In finance, how is risk defined?
Explanation
Risk includes the potential for loss - and if you're trading using leverage, the potential to lose even more than you put in.
You are less likely to be affected by systemic risk if you...
Explanation
Although systemic risk is difficult for anyone to protect themselves against, investors with diverse portfolios tend to not be as badly affected as those who invest in just one sector or asset type.
Please select one answer to complete the following sentence: 'Traders with effective risk management strategies...'
Explanation
Traders with particularly effective risk management strategies can still make money even if they lose more trades than they win, as their winning trades, on average, should be more profitable than their losses.
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