X

Get trading opportunities to your inbox

There’s no charge for this. It allows you to sample our service.

In addition to regular trading opportunities, I would also like to receive the Weekly Newsletter. You can unsubscribe at any time.
Getting latest data loading

Risk vs. Reward

The information on this page is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.

Trading the financial markets is as much about capital preservation as it is about capital appreciation.

Successful traders will tell you that before placing trades it is paramount to measure both how far you believe a trade can move in your favour as well as how far you would realistically let it go offside before calling it a day, the latter being crucial as a reminder that your money is at stake on every trade.

Only when these two numbers are identified can you calculate what is key in prolonging your trading longevity – the reward-to-risk ratio/multiple which dictates whether trades are worth the risk.

When risking £1,000 you are unlikely to do so for equivalent gains (reward-to-risk ratio of 1:1, or multiple of 1x) – unless it is a dead-cert, of course, but unfortunately the markets offer very few of these, if any.

If you did trade on this basis, and assuming (realistically) that you are not successful on every trade, maybe getting 5 of 10 trades right (50%), a reward-to-risk of 1.0x on each trade would see profits from winning trades offset by losses from losing trades (white boxes in below table). A lot of effort and risk for nothing and no guarantee of you achieving 50% success.

Net trading P&L using reward-to-risk multiple 1.0x

Source: Accendo Markets; trading related costs excluded

In order to get your account balance positive (green shaded section, rising up the blue boxes) using a risk-to-reward multiple of 1.0x on every trade you would need to wither increase the number of winners versus losers (eg. 6 winners vs 4 losers, 7 vs 3, etc; easier said than done) or for profits to exceed losses. Assuming you have little, if any, control over the former, the easiest way to better the situation is to work on the latter by increasing the quality of any potential profits by identifying more attractive reward-to-risk ratios.

Increasing the reward-to-risk multiple of your trades by 50% to 1.5x means that whilst you are still rising
£1,000 on every trade (speak to us about protective tools to limit losses) your potential profits from those
which go according to plan would rise by half to £1,500 per trade.

Net trading P&L using reward-to-risk multiple 1.5x

Source: Accendo Markets; trading related costs excluded

Across a total of 10 trades and with an unchanged 50% success rate, the above table shows how your net gains would rise to a healthier £2,500 – significantly bettering your previous treading of water. Best of all, if your success improved to 60% (6 winners, 4 losers) your profits would rise to £5,000. On the flip side, if your hit rate deteriorated to just 40% the new 1.5x ratio would still allow profits to offset losses. Note also that a 1.5x multiple allows 6 winners to offset 9 of your losers.

If we assume that to really increase your chances of making a net profit across multiple trades you need to increase the multiple further, to 2.0x for example, the table below shows how 50% success across 10 trades would deliver you net profits of £5,000. It would also allow your success to fall to 4 in 10 and still net you a £2,000 profit whilst rewarding any boost in hit rate to 60% and above with profits exceeding £8,000. Note also that 5 winners would offset up to 10 losses, while 4 would offset 8.

Net trading P&L using reward-to-risk multiple 2x

Source: Accendo Markets; trading related costs excluded

As an analyst producing trade ideas for clients I tend to focus on ratios of 2.5x and above. If I assume that Accendo Markets clients follow a run of my ideas and that I don’t get them all right (I too am realistic – I work hard to identify good ideas but if I did get them all right I would work for myself, from a tropical island), my aim is to have the few hopeful winners offset the likely several losers.

As the table below shows, if you increase your ratio to my preferred minimum level of 2.5x your net profits across 10 trades would rise to £7,500, assuming 50% success. If we are pessimistic and assume as low as 30% success (just 3 out of 10 trades right) you would still bank a £500 profit – not great, but still better than breaking even after all that work and a helpful contribution to covering trading costs.

Net trading P&L using reward-to-risk multiple 2.5x

Source: Accendo Markets; trading related costs excluded

If your success improved to 60% profits would rise to an impressive £11,000, which could be used to covering another 11 losses if you had a bad run, and extremely significant is that just 4 winners would be able to offset up to 10 losers. Once we get into the realms of risk-to-reward multiples of 3x and above profits across 10 trades with 50% success rise to£10,000 and just 3 winners suffice to numb the pain from 9 losers. Anything better and profits increase significantly, while success can drop as low as 30% and still generate £2,000 profit.

Net trading P&L using reward-to-risk multiple 3x

Source: Accendo Markets; trading related costs excluded

But that’s so obvious

Many will claim that what we have looked at is very obvious, but it is extremely common to see even seasoned traders repeatedly making the same mistakes;

a) Risking too much on a few trades (all their eggs; no diversification);

b) Assuming success rates will be higher (natural optimism), and;

c) Focusing too much on what can be made as opposed to what is being risked (see above).

The result of the above is from where the adage “a long-term trade is just a short-term trade gone wrong” is derived, with traders refusing to take a loss.

Whilst I agree that trades can always come good it is a very one sided argument which ignores the fact that things also can always get worse. Once offside, a trade has to do a lot of work just to recover to breakeven, never mind make a profit as was originally forecast.

Avoiding closing out of a trade at your pre-defined worst-case level goes against your trading strategy and setup. What changed your mind? It was your worst case scenario and now it’s worse. Keeping it open and hoping it recovers also deprives you of the chance to preserve capital and more importantly put it to work in a better trade idea.

Think before you trade

Next time you’re about to place a trade identify your worst and best-case price scenarios. Make sure you’re realistic with both, remembering that you’re risking real money. Now take the multiple of profits versus losses and decide whether the aggregate profit across 10 trades (assuming a realistic success rate) using a similar setup would be worth the work involved in placing and monitoring.

The higher the multiple you use, the more green there will be on the P&L tables tables and thus the more chance of making a net profit across the trades and the fewer winners you will need to offset the several losses. As a reminder, the lower the multiple you use the lower the profits potential from any winners and less proifts there will be to offset the inevitable losses.

Trading less but more wisely, spending more time more time identifying better setups is a solid recipe for a long and ultimately profitable trading lifetime.

I hope that what you have read is a breath of fresh air, makes you think the next time you trade and ultimately helps you in your pursuit of long-term and profitable trading. This is just one of many educational pieces which we provide to trading clients, and we hope you will join us soon.

Mike van Dulken, Head of Research

 

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
EXCELLENT

4.81 Average

156 Reviews

George

I have found Accendo staff very helpful,,and informed. I have traded with you for some years now and have no regrets. Keep up the good work!

Posted 1 month ago

Shaun D

since signing up for Accendo I have had two traders, Mark and Sam. I have found both of these to be very informative about how CFD's work and they have made it very easy for me. Since working with Sam (last four months) my trading knowledge has improved and I can make more informative decisions about which Company's to invest with. Keep up the good work Sam.

Posted 4 months ago

Anonymous

I am very happy with the service I get from Accendo Markets and in particular Amrit Panesar. He is very professional and pleasant to speak to and this counts for a lot.

Posted 6 months ago

Shreekant P

Its a good site for dealing stocks worldwide and having good staff.

Posted 7 months ago

Nick W

Krishan Appiah is one of the most dedicated / informative broker I have ever had.

Posted 7 months ago

Thomas I

Since I have been trading with Accendo Markets I have experienced much greater success than has been my experience with other trading companies mainly due to the help given by, what I consider to be my terminal with the trading floor, Mark, who has been most helpful in reminding me of the progress of my positions throughout the day and keeping me in touch with those positions so that I can more easily make successful trades when appropriate instead of missing out on opportunities through lack of attention. He draws my attention to the situations and enables me to make profitable trades. I am very happy with the situation at the moment and am enjoying the experience. Thomas Irving.

Posted 8 months ago

Kartik A

Accendo markets keep me connected with the market and its very well followed by Mr. Krishan Appiah ,which helps me to take certain decision on time.

Posted 8 months ago

Peter p

I have been trading with Accendo Markets and James Abbott my account manager for coming on 5 years now, James Abbott the senior trader of Accendo Markets provides me with up to minute information when I need it and find him very easy and professional to deal with. Whenever I need to trade or am not sure about anything James is always their to help with any queries I may have. The Accendo Platform I find very easy to use and navigate although it has been slightly changed over the years but definitely for the better. Personal when I do trade 90% of the time, I rather telephone call to place my trade dealings and if James is not there to take my call I find others at Accendo like Sam, Lee take my trades and are. All in all everyone at Accendo Markets are amazing to deal with and my relationship with Accendo is just as I like it. Peter Petrou

Posted 1 year ago

Mrs. J

"Our Trader, Aymen Azizi, has been nothing but attentive to our every need throughout our long relationship with him. No issue is too small, full explanations on all our questions."

Posted 1 year ago

Brian R

I have been with Accendo for a long time now, ten or twelve year's, probably more . As I told Sam (my trader) I thought that CFDs were better than sex . I stopped trading for a few years and only started back about a couple of months ago. But it is as if I had never been gone , so to speak. Sam has helped me every step of the way, at my age one forgets things. I have only praise for Accendo and as far as I am concerned the platform is the best . Now I am back trading at 71 years of age, I might even try sex again. Brian Robertson.

Posted 1 year ago

Jim W

I understand how to make a profit with CFDs. I am restricted by the range of companies I have knowledge of. Although, I am not sure that is a big problem. Tom Robertson is a very fine man.

Posted 1 year ago

Rebekah S

Well, I would not be trading without the help of my trader, Sam Alnakkash. He provided a really great overview of Accendo Markets, an insight into trading in general and how to get started in trading online. His advice, support and training has been fantastic all along the way, enabling me to start trading earlier than I would have done had I not had the support. He has also been very adept at understanding me as a client in order to help me achieve my trading goals. I still have a lot to learn and hope I will get there.

Posted 1 year ago

Nick z

I like the updates on shares I trade. Updates from Bloomberg and Reuters plus industry updates and breaking news. I've had Matt Grice and James Abbott and found both to be excellent. I would like to continue a personal service with James. He understands how and which stocks I trade.

Posted 1 year ago

Steve O

Excellent, knowledgable broker interaction and communication, coupled with very good research and analysis.

Posted 1 year ago

William P

Being new to direct trading I needed help and was given all the time and advice that I needed to feel fully able to make decisions on what I wanted to invest in. I asked for and got exactly the type of info I required provided by Tom Cook, who I would recommend to anyone looking for help.

Posted 1 year ago

Mr. W

I have been dealing with accendo for the past 8 years my broker Amrit I find him very helpful when he is there lol and had many offers to change but will not do it Bill Roberts

Posted 1 year ago

Zoran N

Very good all round service! Timely market information. (charts + trends coverage ) On the ball accounts managers ,quickly available and alert . Part of my success owed to my personal manager Mr Sam Springet , than you.

Posted 1 year ago

Mr Brian C

Easy to deal with.....

Posted 1 year ago

Muhammed S

Accendo markets are great for trading cfds and their research is second to none! Aymen manages my account is extremely helpful and always keeps me updated on market info. Thanks again

Posted 1 year ago

Mr Buta B

Always available, whenever I call I get straight through to someone that can and will help. The staff are very knowledgeable, helpful and easy to talk to.

Posted 1 year ago

Stephen B

Aymen Azizi keeps an eye on what is happening in the market and informs me with timely relevancy, email call, and txt.

Posted 1 year ago

.