risks of investing
You should always remember that despite of the objective of the available benefits, investment and work on the stock market involves risk of loss (a decrease in the value of own capital). What are the risks?
When working on the bond market there are the following main risks:
Default risk - the risk of failure (delay) of the company issuing the bonds from the payments on the bond.
Interest rate risk (liquidity risk) is the risk that, because of the deterioration of a conjuncture in the market price of the purchased bonds starts to fall, thereby, bringing to the market value of Your home equity.
When working on the stock market there are the following main risks.
The risk of deterioration of a conjuncture of the market. As mentioned previously, the yield on the stock market closely related to the rate of economic growth. Therefore the reduction in the forecast of rates of economic development will lead to a fall in market shares, and consequently, there is a risk of losses arising from investment activity. This and there is a risk of deterioration of a conjuncture of the market. This risk applies to earn investment income.
The risk of error own expectations. In that case, if You are trying to get the speculative income in addition to the above-mentioned risk there is a risk of error of your own expectations. Often stock markets behave irrationally, that is contrary to numerous forecasts. In such a case, You can get a loss in the market because of their mistakes.
Technical risk. In some cases it may happen that in the implementation of the exchange deals (purchase/sale) of the shares You enter or not the price or not the volume, or make a mistake in choosing the shares. Also, there is some probability that You lose the security keys from the trade terminal.
Force-majeure. Force majeure risk is the risk of non-fulfillment of obligations under the contract due to force majeure.
The risk of deterioration of a conjuncture of the market can be divided by source of origin:
Macroeconomic risks. The negative developments associated with the development of the national economy as a whole. Result in a fall in the total market shares.
Industry risks. The negative developments associated with the development of events in a particular industry. May lead to a fall in the shares of only the industry. Eliminated through diversification (purchase of index portfolio).
The risks associated with an individual company. The negative developments associated with the development of events in the individual company Can lead to a fall in the shares of only these companies. Eliminated through diversification (purchase of index portfolio).
Risks when using marginal crediting
If the work on the stock market You use the marginal lending, You get an additional risk is the risk of a forced closing position (margin call). In this case, in the short-term market moves against You (for example, if You bought the shares, and the prices have started to fall) it is possible forced sale of a part of You bought the shares at a lower price. It is carried out with the purpose to prevent the complete bankruptcy of the investor, which is possible, in case if You are unable to competently manage their own capital.
Risks at work in the market of futures and options
Additional risks arise when working in the market of futures and options
Firstly, it is worth remembering that the maximum loss in the market is not limited. Futures and options - this-risk market, where you can lose all your capital.
Secondly, as in the case of margin loans, there is a risk of forced position closing.
Thirdly, when working with options there is a multitude of specific risks, for example, the cost of the purchased option on the expiry of time can turn to zero, and the value of sold option grow to a huge size.
