“How much could I possibly lose?”
It's more useful to simply think of risk as the money you could lose on any one investment.
So if you normally invest R10,000 in a share with a 25% stop loss, then your usual level of risk is R2,500.
Sometimes you may wonder if you should use a different percentage at certain times.
Well, let's say you buy a penny share that has the potential to make a big move in a short period. (Remember, penny shares are usually volatile, which means they can quickly rise and fall in short periods).
Holding a penny share with your typical 25% stop loss could force you out of the stock before you can capture the gains.
Instead, say you want to hold it with a 50% stop loss. But now look at what that does to your risk...
With that R10,000 investment, you're now risking R5,000.
You've doubled your risk.
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