Risk Capital

AAA

DEFINITION of 'Risk Capital'

Investment funds allocated to speculative activity. Risk capital refers to funds used for high-risk, high-reward investments such as junior mining or emerging biotechnology stocks. Such capital can either earn spectacular returns over a period of time, or may dwindle to a fraction of the initial amount invested if several ventures prove unsuccessful. Diversification is key for successful investment of risk capital. In the context of venture capital, risk capital may also refer to funds invested in a promising start-up.

INVESTOPEDIA EXPLAINS 'Risk Capital'

The more risk averse the investor, the lower the proportion of risk capital allocated in the total portfolio should be. While young investors, because of their lengthy investment horizons, can have a very significant proportion of risk capital in their portfolios, retirees may not be comfortable with a high proportion of risk capital.

RELATED TERMS
  1. House Money Effect

    The tendency for investors to take more and greater risks when ...
  2. Trading Capital

    The amount of money allotted to buying and selling various securities. ...
  3. Risk Management

    The process of identification, analysis and either acceptance ...
  4. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Speculative Capital

    The funds earmarked by an investor for the sole purpose of speculation. ...
RELATED FAQS
  1. How does the risk of investing in the electronics sector compare to the broader market?

    The risk of investing in the electronics sector closely approximates the risk of investing in the broader market. The electronics ... Read Full Answer >>
  2. How much of a diversified portfolio should be invested in the electronics sector?

    The electronics sector tracks closely with the broader market, making it a cyclical sector with average volatility. Electronics ... Read Full Answer >>
  3. What are some common questions an interviewer may ask during an interview for a position ...

    When interviewing for a job at an investment bank, a candidate is likely to answer questions about his career and education ... Read Full Answer >>
  4. If a long call is owned on the record date of a stock, is the owner of the option ...

    The owner of a long call for a stock is entitled to a dividend only if the option is exercised prior to the ex-dividend date, ... Read Full Answer >>
  5. What is the average annual return for the S&P 500?

    According to historical records, the average annual return for the S&P 500 since its inception in 1928 through 2014 is ... Read Full Answer >>
  6. How can an investor profit from the cyclical nature of the electronics sector?

    An investor can profit from the cyclical nature of the electronics sector in two ways. He can employ sector rotation, shifting ... Read Full Answer >>
Related Articles
  1. Markets

    An Introduction To Small Cap Stocks

    When it comes to a company's size, bigger isn't always better for investors. Find out more here.
  2. Options & Futures

    What Is Your Risk Tolerance?

    Forget the cliches and uncover how much volatility you can really stand.
  3. Entrepreneurship

    What is Unlimited Liability?

    Unlimited liability means that the owners of a business are liable for the entire amount of debt and obligations of that business.
  4. Entrepreneurship

    The Story Behind Google's Success

    An ongoing commitment to innovation and rapid iteration drives Google's ongoing success.
  5. Entrepreneurship

    How To Profit From Solar Energy

    Once regarded as too expensive and inefficient, solar energy is now becoming a more viable option for consumers and businesses alike.
  6. Mutual Funds & ETFs

    The Top 3 Silver ETFs

    Like any tradable asset, silver and silver ETF prices are governed by the fundamental market economic forces of supply and demand.
  7. Options & Futures

    How To Trade Orange Juice Options

    How do orange juice options work and which factors determine the orange juice valuations? Here's a sneak peak into the world of orange juice options.
  8. Entrepreneurship

    New Battery Technology Investment Opportunities

    With the advent of mobile computing and electric cars, the importance of batteries for electrical power will continue to grow.
  9. Active Trading Fundamentals

    Invest In Gold Through ETFs

    The mystique of the yellow metal captivates market players seeking hedges against inflationary pressure, safe haven in turbulent times and opportunities for speculative trading opportunities. ...
  10. Forex Strategies

    An Introduction To Trading Forex Futures

    We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center