Many individuals are taking Stock Market trading as a full-time business nowadays. The earning potential in the stock market is endless, and the capital requirement is less. So does this mean that there is no risk involved? The answer is NO. There were risks involved in the stock market from its inception. The type of risk may have changed due to several regulations and controlling bodies, but the stock market is quite risky today, too.
Risks involved in the stock market today
There are several risks in the stock market. As an investor, your main aim should be to preserve your capital and not face losses. The main two risks are:
- Volatility
Volatility refers to the change in stock prices over time. If the stock price changes too much, then the stock is considered highly volatile. There is no particular direction to volatility. The stock price may either go up or down and makes it risky for the investor to predict the direction.
Several factors can cause a stock to be volatile. If there is a merger announcement and the market is not sure about the effect of the merger, then the stock price can move drastically. So volatility of a stock is a big risk factor.
- Overconfidence
Investors start to suffer losses when they become overconfident. Suppose that an investor is too optimistic about a particular stock and takes high leverage to buy it and then it fails. The losses will magnify due to leverage, and the investor’s wealth can be wiped off completely. So as an investor, you should always control your greed and don’t be overconfident.
Conclusion
The above-mentioned risks are the most common in today’s stock market. As an investor, you should always give importance to the fundamental analysis of a stock rather than any random market news. Also, try to avoid the market when it is very volatile.
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