Capital at Risk (CaR)

Definition - What does Capital at Risk (CaR) mean?

Capital at risk (CaR) is a measure of how much money is exposed to being lost in a trading account or in a specific trade. Capital at risk is not simply the capital that is used to place a trade. It includes the potential loss in a worst case scenario where the stop loss is triggered for a specific trade or for all trades across an account.

ForexDictionary explains Capital at Risk (CaR)

Capital at risk is most often used on a per trade basis to help a trader decide how to set up a trade. The capital at risk varies depending on where a trader places stop loss orders and how much money is tied up in the trade. A trader sets the CaR on a trade based on the reward-risk ratio he or she sees in the trade. If the risk is low, a trader may risk 10% of the entire account on the trade. If risk is high, then a trader may want to keep below 5% (including the additional loss if the trade is stopped out).
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