In case I trade on a platform like E*Trade or Robinhood and I happen to lose, can I be guaranteed that I will not lose more than my investment? Aka I invest X and I lose X but nothing more. I can afford losing my investment X but I want to avoid getting in debt. I would like to trade on companies like Tesla, Microsoft or indexes like the S&P 500. I would like to trade bullish and also bearish (betting it will go down).

Which investments should I avoid to lose more than my investment?


1 Answer 1


In order not to lose more than your investment, you need to trade limited risk investments. Limited risk means that there is a predetermined maximum downside potential which is the amount of the investment. This would include anything that could be purchased in a cash account (stock, standard and inverse ETFs, mutual funds, options).

Unlimited risk is where there is the possibility of unlimited losses. This would include buying equities on margin, selling equities short, trading futures, and selling naked options.

Unlimited risk investments can be converted to limited risk by hedging with options but that's another discussion.

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