CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

What is expected loss?

Expected loss

This is a calculation used by lending institutions to help them understand losses they may incur as a result of lending to a borrower that may default.

Where have you heard about expected loss?

This calculation is mainly only used by banks and other financial institutions that lend money. It's an important part of their risk calculations.

What you need to know about expected loss.

The calculation for expected loss is:

probability of default x loss given default x exposure at default

Probability of default is the likelihood that a loan will not be repaid and must be calculated for each borrower, using the bank's own internal ratings or those of an external agency such as Moody's or Standard & Poor's. Loss given default is the fractional loss due to default, and exposure at default is is the amount that the borrower owes to the lending institution at the time of default.

Find out more about expected loss.

To understand expected loss, it helps to be familiar with credit risk. Find out more with our guide.

Related Terms

Latest video

Latest Articles

View all articles

Still looking for a broker you can trust?

Join the 610,000+ traders worldwide that chose to trade with

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading