Risks Associated with Stock Market

Investing in stocks can be risky? Yes it can be risky business. There are few risks that can be controlled, but others that investors can only guard against them. The risk involved in the buying and selling of shares is 99% same as gambling. The equity market is a roller coaster and the more an investor or trader understands about the risk, the safer he will invest in the market. There are several types of risk that investors face, but the five main risks that associated with investing in stocks are:

Economy Risk: One of the biggest risk in the equity market because economy can go very bad. You remembered that in 2001, terrorists attacked on world trade center had affected the stock market very badly. Remember, an indisposed economy can put all stocks at high risk, it does not matter the brand-name strength and the management team. During depressions and recessions, economic risks become very evident.

Inflation: Most of the investors or traders ask that how inflation is a risk for them? If inflation is increases then the dollars, which investors are investing are worth very less, and gives them a less bang for their buck. Generally, inflation is like tax on every investor and it destroys the value of goods and generates recessions. Inflation not only hurts investors, traders but every single common man on their fixed deposits or income.

Market Risk: Also called systematic risk is referred to that what happened when the market turns against your investment. Market risk can be generated by any economic, geographical, political, social or other factors. We all know that share prices can be very unpredictable as well as volatile to various economic or market factors both nationally and internationally.

Emotions and Sentiments: It sounds little funny, but most of the traders or investors do this mistake of involving their emotions and sentiments in their investing, and buy the shares when they are at their high price and sell when re at their lows. We know that controlling sentiments and emotions are very difficult, but if you do not control, then it can put a big risk on your portfolio. Therefore, invest in the share market without emotion.  It is advice for those investors who are very emotional that they must take share tips, or stock future tips from experts before investing.

Interest Rate Risk: Changes in interest rates can affect share prices of different companies. For example, Interest rate movements in Hong Kong can be influenced by interest rate movements in the U.S. Another example, in Sep 2008, Lehman Brothers Holdings Inc was the fourth-largest investment bank in the US but was declared bankruptcy in 2008 because its most of its of its clients have lost their money on the stock market.

These are the some major risks that are highly associated with investing in the stock market. The stock market is good for making good money in quick time, but you first understand the risks before spending your money in the share market.

Sponsor Ads

• Ad Space Available - Rent it Now!

Report this Page

Created on Dec 31st 1969 18:00. Viewed 0 times.

Share on APSense

Comments