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What Is a Rio Trade?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 23 November 2016
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A Rio trade is a somewhat humorous description of certain actions by companies or investors that are really devoid of cool-headed calculations due to the circumstances that surround such decisions. Usually, the actions arise out of desperation on the part of such entities when they are faced with massive losses in the context of the sum of their investments. The application of a Rio trade in this context would be for these entities to make one last attempt to rectify the loss to their investments by resorting to certain types of trades that they would probably not contemplate if all was well their investments. A risky trade is usually aimed toward the hope that some sort of miracle would occur, and they would recoup their lost investments if the trade should prove to be a success.

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Most investors would not contemplate a Rio trade unless it was absolutely necessary, they were really desperate, and they really needed a break that would prove to be the panacea for their current unpalatable situation in terms of their huge losses. An illustration of the application of a Rio trade can be seen in the case of an investor who suffers a loss to the tune of more than 90 percent of his or her investments, either through miscalculations on his or her part or due to circumstances beyond the individual's control. For instance, an improper prediction regarding the future of certain industries or markets could cause a person to invest a considerable sum of money in that particular market or industry. When the investor discovers that the indicators had been misread and that the investment had suffered losses, he or she would look for the fastest and easiest way to recoup the losses in order to keep creditors at bay.

Part of the efforts toward avoiding the negative consequences of the loss would be to engage in a very risky trade or Rio trade that may seem to have a sliver of chance at success. In a sense, this is a sort of all or nothing trade, which is why it is referred to as a Rio trade. Presumably, in the past, when investors engaged in failed investments, they usually fled to Rio de Janeiro in their desperate quest to stop any harassment from creditors who would surely come knocking on their doors in a bid to collect their money.

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