What is attitude to risk?
Your attitude to risk is a personal view or feeling about risk, which is likely to depend on your personality, circumstances, past experience, age and goals, among other factors.
Attitudes to risk vary from person to person, so an opportunity that appeals to somebody else may not necessarily be right for you, and vice versa. For example, a spread bet on a new and undiscovered company’s stock might feel like an exciting opportunity to one person, while another would regard it as too dangerous and stressful. On the other hand, buying shares in a stable blue-chip company might seem like a secure choice to some people, while others could be put off by the long-term nature of the investment and the relatively low potential returns.
How much should you risk?
Choosing how much to risk is very dependent on your personal circumstances. Some guidance will advise you not to risk more than 1% of your dealing capital (the total amount of money you can dedicate to trading) per position, while other sources recommend up to 10%.
If you choose to risk 10% or more per bet, bear in mind that any losses could have a huge effect on your overall capital and your ability to claw back the money lost.
Say you have £10,000 of dealing capital and you’re unlucky enough to make a loss on 15 trades in a row. Below you can see the difference between risking 2%, 5% or 10% per trade:
With 2% risk per trade, even after 15 losses you’ve lost less than 25% of your capital. It’s conceivable that you can win this money back.