team hero background image

What is Value at Risk (VAR)?

The Value at Risk (VAR) reports the maximum loss for an investment over a given time period.

Measurement of ‘worst case’ scenario downside risk to an investment or portfolio based on expected volatility.

In other words, it can estimate how much of your investment you might lose (with a given probability), at given normal market conditions, over a given period based on the probability of past performance.

laptop

The Formula of Value at Risk calculator

Given portfolio value

x

Expected volatility

x

Confidence level

x

Time horizon (days)

=

Value at risk

This calculator lets you set the amount of your position, its periodic volatility as well as the confidence level (a value between 90% and 99.9%). Once you have set your parameters, click the 'Calculate' button to get your VaR number.

Disclaimer: Please note that this result is theoretical only and is based on the normal distribution of returns assumption.

Given Portfolio Value: The new investment you want to make

Expected Volatility (Standard Deviation): Includes the variance-covariance method It assumes a normal distribution in returns or expected return

Confidence Level: Also called ‘periodic volatility’.

Time Horizon (Days): The square root of the given period over how many trading days are there in a year

Result: Future value of risk, informational purposes, estimate

Value-at-risk (VAR) EA

Identify the strength (or weakness) of various currencies relative to others in real time directly in your trading platform! USD, EUR, GPB, CHF, JPY, CAD and more - you can compare them all!

Pros and Cons of Value at Risk (VaR)

+ Pros

On the pros side, the VaR measurement is widely used by many financial industry professionals and, as a measurement, it is easy to understand. By any means, VaR offers clarity.

- Cons

VaR can tell us things like with 99% certainty, losses will not exceed X, however, it can tell you nothing about what happens beyond that confidence level (losses can be much larger).

There are a few pros and cons to using Value at Risk calculation in risk measurement. The model is developed to work this way because the probabilities in VaR are based on a normal distribution of returns. But, we need to have in mind that financial markets are known to have extreme outlier events on a regular basis— far more than a would predict.

Finally, the VaR calculation requires several statistical measurements such as variance, covariance, and standard deviation. With a two-asset simple portfolio, this is relatively straightforward, but the complexity increases exponentially for a highly diversified portfolio with many instruments.

Let The Tools Do The Hard Work For You

We all know that the markets can be challenging. That’s why we aim to provide traders with any help they may need to improve their chances of potential success. And the best part? It’s free!

Forex Profit Calculator icon

Forex Profit Calculator

Calculate your profits and losses before or after executing a trade with our free Forex Profit Calculator.

Lot Size Calculator icon

Forex Lot Size Calculator

Use our simple yet powerful Forex Lot Size Calculator to calculate the exact position size for each trade and manage your risk per trade like a pro.

Economic Calendar icon

Forex Economic Calendar

Access our free economic calendar and explore key global events on the horizon that could subtly shift or substantially shake up the financial markets.

Currency Strength Meter icon

Currency Strength Meter

Compare the performance of major currencies relative to others in real-time with our advanced Currency Strength Meter.

Market Heat Map icon

Market Heat Map

Measure the strength of major currencies relative to others in real-time and quickly and easily determine when a currency is moving strongly in one direction or another.

Calculate annual growth rate icon

CAGR Calculator

Calculate the Compound Annual Growth Rate (CAGR) of your investments with our easy-to-use CAGR Calculator.

Calculator icon

Value At Risk Calculator

Calculate how much of your investment you might lose at given normal market conditions, over a given period based on the probability of past performance.

Calculator icon

Pip Calculator

Calculate the pip value of your trades for all major Forex currency pairs, indices, cryptocurrencies, and more, using live market quotes.

Calculator icon

Forex Swap Calculator

Calculate the swap fee you will be charged on your trading account for holding your positions overnight with ease.

Calculator icon

Margin Calculator

Determine the exact margin you need to open a trading position with our easy-to-use Forex margin calculator.

Calculator icon

Forex Compound Calculator

Use our advanced Forex compound calculator and simulate the profits you might earn on your Forex trading account.

Calculator icon

Pivot Point Calculator

Use the pivot point calculator to calculate pivot points and determine potential support and resistance levels and how prices could potentially turn.

Tight spreads that make a difference.

Diverse liquidity providers ensure our spreads are tight around
the clock. Trade with spreads as low as 0.0* pips.

Create Live Account Deposit from $50
Start trading in minutes
Create Demo Account Practice with $50,000
Demo environment