The risk / return ratio is one of the most used gold keys by expert investors in the cryptocurrency world. Because the risk / return ratio shows how much of a potential income is risked. So what is the risk ratio and how is it used?
What is the Risk / Return Ratio?
When investing in a field, it is not only “depositing” and earning money in return. Risk analysis is also important when investing money. When investing in a cryptocurrency, expert investors look for a way to reach high potential earnings with the lowest potential risk. For example, the potential gain between coin X and coin Y is the same, but the risk of Y coin is lower than that of X coin. Therefore, the investor will prefer the Y coin between the two coins that will earn the same rate. This is called the risk / return ratio.
In the crypto money market, the risk / return ratio, or (R / R), which is an auxiliary resource that should be heard or mentioned in every transaction, is a ratio that helps you determine how much loss you take in a potential.
How is the Risk / Return Ratio Calculated?
There are some concepts that every trader who trades daily or opens long-term trades should know before investing. Among these concepts, one of the concepts that includes pill-like information is the risk / return ratio. Calculating the risk / return ratio is actually very simple. Let’s provide a better understanding of the subject by giving an example of X on a crypto currency.
- X Coin Buy Price: 0,10USD
- X Coin Sale Price: 0.18USD
- Stop Loss: 0.08USD
Here, the stop loss point is determined after the risk / return ratio is determined. So blindly, it is not something that can happen by saying that I take such risks. For this, again, the investor must have a good command of technical analysis and fundamental analysis.
When opening a position in crypto currencies, you are definitely putting stop loss. But you will also need to make a small calculation. For example, you gave an order to buy X coins and your chart shows in the rising channel and you have given an order to a sales point you have determined according to yourself. Of course, every investor wants such a chart to be finalized. But since there are instant changes in the cryptocurrency world, you also need to analyze the risk aspect of this business. So how far back the X coin falls from where you bought it, you will close your position? Determining the stop loss point is exactly that. In other words, the risk / return ratio is calculated and put.
Why Is Risk / Return Ratio Important?
In fact, the risk / return ratio is used in all areas of trading. Acting without knowing how much risk is required for a job usually ends in disappointment. The situation is different in crypto currencies. When trading daily, weekly or longer futures, you need to use the right tools to help you determine your earnings.
Although it is an issue that new investors should focus on much more, the risk / return ratio R / R is an auxiliary tool that experts use more. The only reason for this is that they act consciously while investing. Or, those who have lost their presence in cryptocurrencies before will not enter the transaction without R / R.
Risk / return analysis is the calculation of the money to be earned in the process between the point of purchase and the point of sale when investing in a cryptocurrency, and then calculating how much loss will be made if the coin price hangs back and put a stop point accordingly. In other words, R / R is an analysis method that should definitely be used in order to manage assets with little risk.