Michael A Wilson#5

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What is risk-adjusted return in forex?

Risk-adjusted return evaluates how much return a trading strategy generates for the amount of risk taken. It helps traders compare strategies beyond raw profits. Common measures include Sharpe, Sortino, and Treynor ratios. For example, a trader making 30% returns with 20% drawdown is less efficient than one making 15% with only 5% drawdown. Risk-adjusted metrics encourage sustainable growth by prioritizing stability over aggressive risk-taking. In forex, this is vital because leverage can inflate returns but also magnify losses. Professional traders focus on consistency in risk-adjusted returns rather than short-term gains.