What is a trading portfolio?

When an investor holds a group of various financial instruments, it is called a portfolio. The portfolio may contain assets such as stocks and shares, funds, currencies, derivatives and bonds.

The investor may be an individual trader or a financial institution such as a bank, fund or venture capital company.

Building a portfolio for trading

An investor seeks to maximise their expected return and minimise any risks when building their trading portfolio. The goals of an investor can influence the portfolio and the investment strategy significantly.

Often, a portfolio will be a mix of asset classes. Some of the portfolio might be allocated to high risk investments, such as high-yield hedge funds, bonds or derivatives. To hedge the risks involved, another part of the portfolio might be invested in safer assets such as government bonds. Some assets, such as real estate, might be high or low risk, depending on the exact nature of the investment.

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