Stock Risks: 3 Most Common Risks You Should Know About

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You must be aware that investing is not a risk-free activity. No matter which financial market you invest in, you’re still faced with risks. These risks are inherent, meaning you can never remove them from the equation.

risk written on the enter key of the keyboard


And since these risks are inherent, you have no choice but to try and control them. Controlling and minimizing these risks require many things. But the first thing you should do is to know which risks greatly affect your stock investments.

Let’s start digging into what these risks are. Read on and start managing your risks better!

Risk 1: Commodity Prices

Commodity prices have swings, or (sudden) price changes, in different periods in the market. Such swings can causes risks to your investments.

Remember that the stocks you’re holding are representations of ownership of a company. This means that whatever happens to the business will affect your stock’s price.

To put it simply, companies that sell commodities stand to gain something when commodity prices soar. On the flip side, companies that use commodities as their material tend to suffer from soaring commodity prices.

That’s not to say that those companies that neither sells nor use commodities are safe from this risk. In fact, all companies could all well be affected. When commodity prices increase, consumers choose to cut down on spending. This decreased spending affects the entire economy.


Risk 2: Headline Risk

Headline risks simply refer to the influence that news has got to the business whose stocks you are investing in.

Any negative news about a company can affect not only the business itself but also the entire sector or industry. Consumers tend to become wary not only about one business’s products or services. They also have stoked concerns even with the business’s competitors.

Small, seemingly insignificant news can actually affect a whole corporation and the ground it’s standing on. For the case of larger news, it can affect not only an entire industry but also an entire economy.

Risk 3: Becoming Obsolete

Every company faces the risk of becoming obsolete, meaning their business is no longer relevant to the market. When the company becomes obsolete, that means there’s really no need for the company to run the business; consumer demand is next to nothing; therefore it spells bankruptcy for the company.

This will happen if the business tries to last in the market without ever changing the way they make money. The company should always try to keep up with the ever-changing landscape of consumer needs and demands.

Conclusion

The key to managing these risks is to have a very efficient risk management style. Along with that, it is also equally necessary to know and understand your risk tolerance, your trading personality, and the things that will help you come up with an excellent investment strategy.

You may even conduct technical analysis and fundamental analysis if you think they’ll help you avoid the risks discussed above. What matters most is that you become disciplined and careful with your investments.



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