Pillar 4: Risk Management Flashcards
Non-systemic risk
something that can happen to affect an individual stock price without impacting the overall market
Systemic risk
something occurs beyond an investor’s control and affects the entire market system
Purchase risk
consumer might lose buying power
Hedge
insurance on an investment
Target
set a target that is likely to be achieved
Entry
enter when the stock fits your criteria
Exit
plan your exit point before you enter the position
Reward
distance between the entry and the target; amount of money you expect to profit when entering the trade
Risk
difference between the entry and the exit; amount of money you are willing to risk losing in order to be in the trade; exit point price
Risk/ reward ratio
refers to the amount of money lost when the stock is sold at the exit price
Market order
trade will go through at the current price or at whatever price the market opens at if the order is placed outside of trading hours; don’t use market orders
Limit order
indicates that you want to buy a stock/ option at that price or lower; you should want stocks that are headed up
Stop market order
window for a stop price which means, “stop and don’t do anything until it reaches the particular price”
Stop limit order
enter two prices: the stop price and the limit price; once the order has been triggered and you’re in, put in an exit order to limit your loss and manage your risk; use this the most often
Unload
sell [stock]
