Limited Risk

Limited risk refers to an investment strategy or financial product where the potential loss is capped or minimized, typically by using protective measures like stop-loss orders, options, or other hedging instruments. Limited-risk strategies are commonly used in options trading, where an investor may cap their downside risk while maintaining upside potential. This type of strategy is particularly appealing to conservative investors who want to protect their capital.

Example

An investor buys a stock and simultaneously purchases a put option to limit potential losses. If the stock price falls, the put option provides a guaranteed sell price, limiting the downside.