1

Type of Loss

It is useful to think about the types of loss a firm, investor, trader, nation, or the global market can sustain as a result of participating in the trading markets. In Chapter 2 in this part, we describe “kinds” of risk as they are commonly defined in books describing risk as well as common usage in the industry. Here, we are thinking about what can happen and how it affects an investor, a trader, or an entity.

As shown in Figure 2.1, the types of loss we define here are part of a spectrum. Usually, problems with an instrument affect only that holding, but if the loss is great enough or if leverage is involved, a portfolio can be destroyed. Most firms or investors can sustain a loss in a position or portfolio, but if the loss ...

Get An Introduction to Trading in the Financial Markets: Global Markets, Risk, Compliance, and Regulation now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.