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Lavanya Subramanian made post

How do traders and investors balance risk and returns?

Answer
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Aditi Sharma answered.
2 years ago


The trader has very aggressive return expectations. For example, the trader is willing to take a very high degree of risk if there is a chance of earning 7-8% returns per month. Traders have a variety of ways to protect their risk. The most common strategy for traders is to maintain strict stop losses and smart profit targets. Some traders may also use shorts to hedge their risk.
An investor has a more conservative expectation of returns and will be happy with around 13-15% returns per annum. The investor focuses more on compounding over the long term. Investors have a different view on protection. They do not believe too much in stop losses. Rather, if they are convinced about a stock, they will buy more of the stock at lower levels. Some investors hedge using options and trailing stop losses.