What is market risk?
Let’s put it like this, “market risk” is a type of risk that all investors should consider before investing in the stock market. Market risk is something that investors should discuss with SEBI Registered Investment Advisor before investing in assets. Assets can be anything from bonds to stock to the real state. Every investor is unique with a different risk appetite and with a different perception of investing and market risk.
Hence, investing in the long term lower your market risk and give more capital appreciation. This is much easier said than done you need a plan before investing and relying upon the market when the market gets scary. A successful investor will conservatively consider his market risk when building out his portfolio of investments according to his risk tolerance.
Five types of risks you should understand before investing in the stock market
- Market Risk – Whenever an investor invests the price at which they buy or the price at which they sell the stock that determines investor profit and loss from that investment. Stock price keeps fluctuating every day or within the day too, this is the market risk that every investor should consider before investing.
- Company Risk – We all know that buying a share of the company means buying ownership of the company. A company’s performance gets ups and down daily which directly affects the price of the stock that which investor bought. Simply says, company performance affects the price of the share. If the company’s performing well then the stock price also sees a rise. Whereas if the company downfall or makes a loss then the price of the stocks see a downfall or makes a loss for the investor. This is the reason why investors suggested reading and analyzing a company’s all statements before investing so that they can protect themselves from making a huge loss while investing in the stock of that company.
- Interest rate risk – The interest rate changes from time to time by the government and this can positively or negatively affect the company or market. Let’s understand this with an example If interest rates are high then the bank lends money to companies at higher interest rates which leads to less lending money or companies find quite uneasy to borrow money. As you can also say that if interest rates are higher companies get loans at higher interest rates which directly cut down the profit of a company and its stock price. On the other side of interest rates is low then it can cause a slowdown in the economy which leads to less demand for stocks and because of that business suffers.
- Liquidity Risk – Before investing an investor should check the company’s background carefully. If the company has lots of debt and has to pay loans then they cut down the dividend or prefer not to pay it. Liquidity risk is involved in every business. All of this can make adverse effects on the company and the stock price of the company.
- Inflation Risk – Inflation increase the price of the commodities and the material available in the economy. When the inflation rates increase that means companies have to pay more for their raw material which impacts an increase in the price of the stock. As if inflation drops the purchasing power of the company increases and with that its drops the price of the share as well.
Conclusion – There are so many other types of risk like political risk, currency risk, etc. from which investors should protect themselves. There is all type of which is there in the stock market which investor should aware of and take the help of Brighter Mind Equity Advisor because they help an investor to protect against any kind of risks which is available in the market.
