It is pretty common now that everyone is talking about it – trading might be risky. You might get this warning from pretty much everywhere. So today, we will discuss this risk factor for trading.
It is an important duty of every investor to assess how much risk they are taking for their every decision. Calculating risk is not easy, and it becomes even harder when you are into copy trading. There must be something out there to help you with this factor.
About The Risk Score
Etoro is currently working on and planning to release a feature within the next few months. The feature is called – risk score, and this will be a really handy tool for all the investors out there.
The function of Risk Score is to assess the risk associated with your particular trading decision, and it will work even on a copy trading aspect. With the help of the tool, it will be possible for you to analyze possible risks and where they are coming from, plus you get to analyze the profile of others, not just your own.
In terms of copy trading, the trader who you will copy will have a definite impact on your Risk Score. Data will be collected and the calculation will be done using the preferred algorithm. This will allow you to assess the risk other traders are taking.
Risk Score procedure
One important thing you need to understand is that risk score is based on a trader’s performance from the past, so it cannot indicate what the future results will be.
The procedure to calculate risk is pretty simple and does not include any sort of hardcore algorithms. Most traders invest in multiple instruments to reduce risk. As you copy multiple traders, your risk score will be high if they all invest in a similar way. On the other hand, if they invest diversely then your risk is lower.
Since the risk score tool is still in development, you won’t be able to get updated about risk in real time. But in the future, it might be possible for you to get a risk score in real time.
How this works
You will get a numerical risk score that has a range from 1 – 10. This will help you to understand the amount of risk associated with your decision easily. The moment you make a new investment decision, the risk score will be visible. Etoro promises to improve this process even further so you can get more details and infographics on risk analysis. This improved feature will be provided as an update in the future versions.
This is a tool that we are talking about, but you are the trader. So, this tool might actually help you to make your trading decisions, but you are the one who is supposed to take responsibility. The risk score feature doesn’t tell you if you should invest or not.
What will happen?
Etoro promises to launch this amazing new feature within the next few months. Also, some risk analysis of most copied traders will be published so you can have abetter understanding of the Risk Score.
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