Risk-free rate
Volume Profile Analysis glossary · Volume Profile Technicals
Definition
The return on a notionally riskless investment (typically short-term Treasury bills), used as a benchmark in risk-adjusted performance metrics such as Sharpe.
Risk-free rate in plain English
The risk-free rate is the return you could earn on an investment so safe it's treated as having basically zero chance of losing your money — usually short-term government bonds (like U.S. Treasury bills), since the government is extremely unlikely to fail to pay you back. It matters because it's the baseline every riskier bet is measured against: if you take on real risk, you'd better earn MORE than this safe rate, or why bother? It's like the guaranteed allowance you'd get for doing nothing — any side hustle only makes sense if it pays better than just collecting the allowance. This baseline is the starting point for scores like the Sharpe ratio, which judge whether a strategy's extra return was worth its extra risk.
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