Risk ManagementBack to Glossary
In investing, risk management is simply the manner in which the uncertainty of markets is quantified, accepted and/or reduced using different investment strategies and vehicles. This process starts when an investor determines their own level of risk-tolerance or risk aversion that then goes on to inform the types of securities they are willing to invest in as well as the respective percentages of them in his or her portfolio. When a bank runs a credit check on you before approving you for a loan this is a risk management strategy. When you take out health insurance for your family this is also a risk management strategy. When a company hedges its currency risk by entering into a futures contract, or an investor creates a diversified portfolio. All of the above are different types of risk management strategies.
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