Sortino Ratio: An Overview of Forex Trading Risk Analysis

2 min read

The Sortino Ratio is a risk-return measure often used in Forex trading. It is calculated by taking the yearly returns of a portfolio and dividing them with the portfolio’s downside deviation, which measures the value of an asset’s downside volatility. This ratio can be used to determine whether a trading strategy is likely to succeed or not. By comparing the Sortino Ratio with the Sharpe Ratio, traders can identify which strategies are more effective over the long run. The higher the Sortino Ratio, the better the risk-return ratio and the more likely a trader is to be successful. Additionally, by focusing on minimizing downside volatility, the Sortino Ratio can help traders capture more of the upside potential of a trading strategy while limiting losses.