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Chapter 2- Introduction to Risk Graphs

Risk Graphs are charts that allow investors to analyze theoretical possibilities. This concept is very important and requires complete understanding. To begin, let's introduce an empty risk graph and define the components. 

 

The important parts of the risk graph are as follows:

Y-axis

The vertical Y-axis (running up and down along the left side) represents the Profit and Loss.

X-axis

The horizontal X-axis (running left to right along the bottom) represents the underlying stock price.

Breakeven Line

The breakeven line (running left to right in the middle of the graph) represents the breakeven point on the investment.