Risk tolerance is important to understand. It will help you protect the discretionary money you are looking to trade.  The  products in the link give you tools to manage risk.

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We congratulate you for taking this first step to assess  your own risk tolerance. Brave people want to know what’s inside! Often, you don’t know how you’ll react under different conditions, but this little exercise will open your eyes to what might be! AND, to where a better understanding of market principles and strategies can take you.

Whenever you master a new challenge, it always comes at an expense. That is, it took some work to accomplish. Usually, the greater the challenge, the more work that is required. Call the new challenge a reward and the required work a sacrifice. We invite you to make the sacrifice, reap the reward. In some circles, it’s called the Law of the Harvest. If we don’t sow the seed, we needn’t worry about any harvest. Others call it the Law of Cause and Effect; for every effect, there is a cause. Reward and sacrifice go into every worthwhile effort, including trading in the stock market. In the market we call the investment reward the return. Return is the financial benefit of risking our money in the market. It is expressed as the “rate of return.”

Investment sacrifice is called risk. Risk takes many forms, but the essence of investment risk is the chance you take that the value of your investment will decline. You are ready to tackle the simple fact that underlies trading risk and return and how they are related. This simple graph is worth a thousand words, showing this relationship.

risk reward

The risk/reward relationship implies that higher returns (rewards) come with higher risk. If you’re unwilling to accept a higher risk, your returns will be accordingly low. In the long term, all investment securities and portfolios operate this way. Furthermore, the relationship explains why get-rich-quick schemes don’t work: to get rich quick, you must assume extraordinary risks that significantly increase the probability of loss.  Rather, the key to successful trading lies not only in a well thought-out plan, consistently applied, but one that accounts for and manages risk.   The cornerstone of good risk management lies in an accurate understanding of your own tolerance for risk.

As your confidence level grows while learning  and understanding risk controls, tools, and the importance of paper trading, your risk tolerance will change.

Self Exam for Risk Tolerance

We have provided this self-exam to assess your own risk tolerance. We feel you will find questions that deal with how you react in various circumstances. Exercises like this will help you examine your comfort zones in making investment decisions.
Answer the following 12 questions, we’ll keep track of your answers:

You’ve just finished saving for a “once in a lifetime” vacation. Three weeks before your scheduled departure, you lose your job. What would you do?


If a relative left you an inheritance of $100,000, with the stipulation that you invest ALL the money in one of the following choices, which would be your choice?


How would your best friend describe you as a risk taker?


Will cash be needed froms personal asset during the next five years?


You buy a stock that drops 25% a few weeks later.  You still believe the company is sound.  What would you decide to do?


You are on a TV game show and can choose one of the following.  Which one would you choose?


Personal assets, home equity, bank accounts, CDs, stocks, mutual funds, bonds:


What does the word “Risk” most closely mean to you?


A month after you buy a stock, it jumps 25% in price.  Which would you do?


Years before you will retire:


Your annual salary increase is 5% of your pay.  Your boss gives you the option of taking the raise now or being paid a bonus of 50% if the company makes its profit goal for the coming year.  However, you won’t get a raise or the bonus if the goal isn’t met.  Which would you take?


You’ve invested $1,000 in a new business venture started by an acqaintence.  The concept still appears sound, but additional capital is needed to actually launch the business.  How much money would you be willing to invest  –  in addition to your $1,000  –   to have a chance to recover your initial investment and perhaps mnake a profit?


Question 1 of 12