Sunk cost
Also called: sunk cost fallacy
A sunk cost is money or effort already spent that can't be recovered. The sunk cost fallacy is letting it drive future decisions, which should depend only on future costs and benefits.
Traders fall for it by holding a losing stock because of what they paid for it, instead of asking whether they'd buy it today.
Related terms
- Opportunity cost: Opportunity cost is the value of the best alternative you give up when you make a choice.
- Cost basis: Cost basis is what you paid for an investment, including fees, used to work out your gain or loss when you sell.
- Risk management: Risk management in trading is limiting how much you can lose, through position sizing, stop-losses, diversification and avoiding too much leverage.
Practise with $10,000 in play money
Free. No real money involved.
For learning only. This isn't financial advice.