What is 'Risk Neutral'
Risk neutral is indifference to risk. The riskneutral investor would be in the middle of the continuum represented by riskseeking investors at one end, and riskaverse investors at the other extreme. Riskneutral measures find extensive application in the pricing of derivatives.
BREAKING DOWN 'Risk Neutral'
A riskneutral investor is more concerned about the expected return on his or her investment, not on the risk he or she may be taking on. A classic experiment to distinguish between risktaking appetites involves an investor faced with a choice between receiving, say, either $100 with 100% certainty, or a 50% chance of getting $200.
The riskneutral investor in this case would have no preference either way, since the expected value of $100 is the same for both outcomes. In contrast, the riskaverse investor would generally settle for the "sure thing" or 100% certain $100, while the riskseeking investor will opt for the 50% chance of getting $200.

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