Quiz No. 2 - Risk Management

Marks the prospective reward an investor can earn for every dollar they risk on an investment.

• Risk/Reward Ratio

• Value at Risk

• Cut Loss

• Leverage

Is the use of borrowed funds to increase one’s trading position beyond what would be available from their cash balance alone.

• Value at Risk

• Risk Management

• Leverage

• None of the above

The maximum loss expected (or worst case scenario) on an investment.

• Risk/Reward Ratio

• Value at Risk

• Risk Management

• Leverage

Is the part of your trading system that tells you how many shares to buy/sell per trade.

• Leverage

• Risk Calculator

• Position Sizing

• Value at Risk

Do not Risk more than 3%.

• TRUE

• FALSE

When does trading become gambling?

• When you go to casino with your laptop and trade there

• When your potential reward is small

• When you dont plan or enforce money management

Which is TRUE?

• Money management rules protect you and can make you profitable in the long run

• Money management rules only protect you in the sense of minimizing risk

• Money management rules only make you profitable

Which is TRUE?

• Drawdowns are part of trading

• Successful traders have plans to avoid drawdowns

• If your trading system is 70% profitable, this means for every 100 trades you make, you will win 7 out of 10

What does a 5:1 reward-to-risk ratio mean?

• If you risk $350, you can win $1750

• You stand to win $5000 if you risk $25000

• If you risk $250 you can lose $1250

Which of the following must you consider in setting risk-to-reward ratios?

• time of day you are trading

• entry and exit points

• favorite stock

• your emotions