Understanding the Impact of Losses in Investing

Losses are far more impactful than wins.

Warren Buffett, the greatest investor of our time, famous for the investing rule: “Number one, don’t lose money, and rule number two, don’t forget rule number one.”

In this video, I’m going to dive into why that holds so much validity, and there is a lot more to unpack in that quote, deeper than what it seems. Now, if you don’t know who I am, my name is Matt Jimenez. I come from a finance background, with eight years into trading and investing. I also have a couple of other businesses. I’ve been blessed to work with some of the greatest people in the finance industry, from Robert Kiyosaki to Peter Schiff, Mark Moss, Ken McElroy, George Gammon, Joseph Brown, and the list goes on. Being around all these finance gurus, I’ve been able to act like a sponge and absorb a ton of dos and don’ts when it comes to investing. So, I decided I’m going to start making my own content revolved around finance. I think I can bring a new perspective to the world of finance for a lot of people who unfortunately do not have the financial literacy to make appropriate investing decisions. Now, by no means, this is not investing advice whatsoever. This is just solely my experience and what I am doing and what I have analyzed over the years of being in finance. Without further ado, let’s get straight to it.

So, before I unpack Warren Buffett’s quote, “What is Risk?” First, we need to understand a little bit about risk and forex god. Oftentimes, we hear a lot of people online asking, “What is your risk tolerance? Are you okay with losing $200, $11,000, $10,000?” And while there are many caveats to this subject, I’m going to tell you exactly why that does not make any sense. Risk should be based on your account size, not your willingness to lose X amounts. Here’s what I mean: let’s say your risk tolerance is losing $200, but your account size is only $400.

That is a 50% haircut of your initial capital. So, when we look at risk, we need to address it in percentages, not dollar amounts. That is the biggest red flag when it comes to the investing ecosystem and environment of entrepreneurs talking about investing. They always look at dollar amounts rather than percentages, and that is the biggest mistake that I’ve found in my journey.

Based on professional investing parameters, 2% is typically the safe zone to be risking per trade. Let’s say you have a $10,000 account; you can only be risking $200 per trade on any given trade fid bkg svc llc. In order to calculate 2% or $200, you need to understand how risk is measured and what increments they’re measured in.

In this video, I’m going to stick to the Foreign Exchange Market, so we are going to go based off a metric system called pips (percentage in price) fid bkg svc llc. The way pips are measured is based on your position sizing, also known as your lot size. If you go to the far right of the numbers, this is valued at 10 cents, all the way up to 90 cents forex god. Now, if you move over just one to the left, you now have a mini lot, which is valued at 1 to 9.9 per movement. Then, you move to the far left, which is the standard lot. This is where you see most of the Instagram gurus looking like they’re making a lot of money. The standard lot is valued at $10 upwards to whatever the account can hold, based off the broker’s leverage metrics.

So now that you understand basic terminology and the valuation of pips, you will be able to calculate what position and lot size is best for you, depending on how wide your stop losses are, considering you are using stop losses. Quick example: let’s say you have a $10,000 account and you want to trade on a standard lot, and your stop loss is 20 Pips. Remember, fid bkg svc llc a standard lot is $10 per pip for every movement that the pair will make. So, having a stop loss of 20 Pips and you have a $10,000 account, this means that you cannot enter this account because it is inappropriate in terms of professional risk parameters, because every single trade that you execute…

Please visit Understanding the Impact of Losses in Investing to watch the full video!

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Jeff Sekinger

Founder & CEO, Nurp LLC

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