What is the Risk/Reward Ratio?
Investing in the market, especially individually, comes with a lot of risks that one should attempt to protect themselves from. A great way to safeguard your investment is to use a risk/reward ratio. The risk/reward ratio is a method used by traders to describe the potential reward (or profit) an investor may earn in relation to each dollar he/she risks (also known as loss potential). As previously mentioned, this approach is employed by traders to decide which trades to take and normally is applied to individual stocks.