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Risk

Diversification — definition & meaning

Spreading risk across different assets so no single one can sink you.

Diversification means not putting all your capital into one instrument or bet, so a single bad outcome does not wipe you out.

It works best when the assets are not highly correlated — otherwise they can all fall together. Diversification reduces risk but also dilutes the impact of any single winner.

The information on Trding.io is for general information only and is not investment advice. Trading involves a real risk of losing money, and most retail traders lose. Never trade money you cannot afford to lose.

Related terms

Correlation
How closely two instruments tend to move together.
Hedging
Opening an offsetting position to reduce risk on another.
Risk-reward ratio
How much you stand to gain compared with what you risk on a trade.
Leverage
Borrowed exposure that lets you control a large position with a small deposit.
Margin
The deposit a broker holds to keep a leveraged position open.
Free margin
The money in your account still available to open new trades.

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