Understanding the risks of investing in stocks



The stock market is one of the most important factors in the global market economy that is now evolving worldwide. It provides capital access for companies in exchange for investing market participants that will serve as their ownership in the company.

In the stock market, whether local or international, investors are given the opportunity to raise small amounts of money into bigger sums.

What are the risks in the stock market?

The stock market provides a lot of opportunities and benefits to offer potential investors, however, risk is always a part of trading and these risks are brought by news linked to unexpected market declines and chaos that takes effect on investor sentiments.

Here are some of the most common risks faced by investors:

• Market Risk- the probability of an investment value to decline.

• Inflation Risk- is the possibility of an asset’s value to experience small gains in keeping up with inflation, lowering your power to purchase.

• Liquidity Risk- Is the possibility of an investment that cannot be bought or sold quickly to prevent or minimize a loss

• Economic Risk- this chances occurs when the whole economy is affected by a decline.

 

Though there are risks in the Stock Market, there are also ways in managing them. 

• Stock Market is wide-open to short-term fluctuations and bearish markets. One way to manage risk is to invest for the long-term.

Investors’ common mistake is to execute the selling position as soon as the stock price falls. If you keep your investment, the price may bounce back. Stocks are long term investments that are exposed to short term fluctuations.

• One of the best ways of minimizing risks and mistakes is to get advice from a financial expert or a market analyst.

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