Read the Lines · Risk & Uncertainty
Drawdown, Liquidity
& Concentration Risk.
Drawdown measures decline from a previous account peak. Liquidity risk affects how easily positions can be exited. Concentration risk arises when too much exposure depends on the same company, sector, catalyst or market factor. These risks emerge across an account, not just one trade.
Quick answer
Why can several “small” positions create large risk?
Because positions can be exposed to the same underlying driver. Five small ASX lithium stocks may look diversified by ticker while still depending heavily on lithium prices, small-cap liquidity and the same investor risk appetite.
What is drawdown?
Drawdown is the percentage or dollar decline from a previous account high to a subsequent low. A 20% drawdown requires a 25% gain from the lower base just to return to the old peak.
As losses deepen, the recovery burden grows non-linearly.
What is liquidity risk?
Liquidity risk is the possibility that exiting a position quickly requires accepting a materially worse price. It is especially relevant in thinly traded securities, during market stress and around trading halts or major announcements.
What is concentration risk?
Concentration occurs when too much of the account depends on one outcome or closely related outcomes. The concentration may be obvious — one large position — or hidden across several correlated holdings.
Portfolio view
Risk is not additive only by ticker.
Ask what would hurt several positions at once: commodity prices, interest rates, market-wide small-cap selling, the same macro theme or the same type of regulatory event. The account can be concentrated even when the names look different.
Important information: This page provides general educational information about portfolio and trading risk. It does not provide personalised risk limits or financial advice.
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