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Trading Portfolio Risk – Generating Returns while Avoiding the Pitfalls

Trading Portfolio Risk – Generating Returns while Avoiding the Pitfalls

When you are the kind of investor who has a large number of different investments, you have what is called a portfolio. If you want to invest smartly and see your wealth as a number of interconnected assets, it’s important that you learn investments strategies are spreads. These moves can be made when you have a developed portfolio and you are able to play different securities and assets off one another, thereby increasing the value of your assets overall. One term you probably hear a lot reading about investing, however, is risk. When you have trading portfolio risk, you have a complex network of potential opportunities and potential setbacks and downright failures. Your goals should be to generate the highest returns and to manage risk most effectively.

An important factor to consider when it comes to trading portfolio risk is that you can never avoid risk. When you think about what the word means, you can imagine that leaving your house in the morning has a great degree of risk to it, though it may not be very much. We can look at risk in the investment world and see that it works in the same way. If a person comes to you and asks to borrow 10 dollars, you can ask him or her how much money he or she makes, when he or she might get that money to pay you back, and what his or her history of borrowing has been like. If this person receives a paycheck in two weeks and will pay you 10 percent interest and has borrowed money from you many times before and always has paid that money back, you have very little risk, though in the grand scheme of things, this isn’t the best investment either since it’s really not that profitable. On the upside, however, it is a nice thing to do.

The above example gives a pretty basic example of what risk is. Now you can imagine the risk associated with complicated securities, such as debt assets, credit derivatives, and others. As a matter of fact, when managing trading portfolio risk, the idea often is to hedge investments and to play various assets off one another. For example, you can offset the risk of one asset by purchasing another asset that you predict will grow in value canceling out the risky asset.

For most people, managing trading portfolio risk requires use of computer programs and sometimes even consultants. While you certainly should educate yourself about this field, at first you can benefit from getting some kind of professional or program on your side.

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