Share Market Trading and Risk Evaluation

by Nirav Singhaniya Financial Advisor

Risk and return have a strong relationship in the stock market. So, if you are looking at high returns, you must be willing to assume the risk that comes with it. In financial terminology, risk evaluation in the online share trading market means to identify and assess your risks. And, further, build a strategy to manage and reduce those risks while looking to maximize your returns.

Every investment you make in the online trading India markets — the National Stock Exchange or the Bombay Stock Exchange — there is a definite amount of risk you need to take. But, to assume this risk, you need to be compensated duty — and this compensation comes in the form of risk premium, or simply, the premium.

At the end of the day, there can be no gains without risks. Hence, uncertainty is central to stock markets when investing in either of India's share market trading bourses. If you're looking to succeed by investing in the stock market, you need to evaluate your risks and employ risk management strategies to decrease uncertainties and enhance your gains.

In the Indian financial markets, there are typically two kinds of risk. These include:

Market risk: This risk results from a possibility in the rise or fall of the financial markets. Market risk is more relevant for short-term investments. To a certain extent, market risk can be managed and controlled.

Inflation risk: Also known as purchasing power risk, this risk results from the rise and fall of the cost of services and goods over a period. If you are looking at long-term investments, you must view inflation risk as an essential consideration. Also, inflation risk cannot be controlled.

Here are some strategies you can employ to mitigate stock market risks over a period.

Pursue market trends: Regarded as a proven method to minimise your risk in the stock market, it can help to follow the trend of the market. But, it can be challenging to spot market trends as such patterns can be volatile. For instance, a market trend could last one whole day, a month or even a year. Moreover, short-term trends also function within long-term trends.

Diversifying your portfolio: To diversify your risk, consider investing in a portfolio where your investments are spread across several companies, industries and asset classes. This is a useful risk management strategy; while the market value of a specific investment may fall, that of the other may rise.

Stop-loss: A practical tool or device to check that you don't lose your money if a stock goes far in a fall is to implement stop loss or trailing tool. Through this strategy, you have the option of exiting if a specific stock goes below the defined limit.

Conclusion

If you were to ask Warren Buffett – a significant investor of all time – on advice to investors, he exclaims, "don't lose money!" But since the stock market is replete with risk, there is no escaping it. However, there are adequate strategies for you to safeguard your money and ensure you receive good yields. Since it is humanly impossible to know when the stock market will rise or fall, having a robust risk management solution can help put the odds of investment gains in your favour.

As an investor, you may want to take the assistance of reputed financial advisors such as IndiaNivesh in managing your investment decisions successfully. Having professional advice and expert analysts providing you financial update can empower you to take risks accordingly and make the right investing moves.

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Created on Feb 21st 2020 05:11. Viewed 288 times.

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