Trading is a risky profession if you are not smart enough to avoid those risks. When you are thinking about joining the trading world, then first you must need to consider the risk in this trading world before joining it. There are usually three kinds of market risks. They are market risks, investment risks, and trading risks. In this article, we are going to explore these risks so that you may get a clear idea about these risks.
Market Risks
You cannot control the market risk at any cost. The main risk here is markets always go through lots of ups and downs but these ups and down allows you to manage your money in a better way possible. You can manage three keys risks as a trader.
- Inflation risk:Traders rarely consider inflation as a risk, but it also impacts those traders who are afraid to take risks. Remember that, if you are not brave enough to take risks then you cannot be a trader. Here the main risk factor is your money will not grow fast enough that crosses the increasing rate so that it causes inflation. The expenses of housing, clothing, food, and medical increases each year. If you invest in a money vehicle that does not keep pace with the inflation rate then you probably end up losing your money.
- Marketability risk:these factors depend on the liquidity if your investment. So if you are not able to sell your investment when you want then your targeted selling point won’t matter much. If you chose to invest in a small company whose stock is not sold in a major stock market then you will face the risk of not able to sell those stocks when the time is right. Study the details on this link https://www.home.saxo/en-sg/products/cfds to learn more about CFD trading.
- Currency translation risk: When you are trading in company stock of different foreign countries then the price difference between these two is referred to currency translation. The main factor when you are doing this you need to keep in mind that price different from your local currency and the currency of that foreign country where your invested company is located. You will face profit or loss based on the currency exchange rate. Even the stock price may rise but if it doesn’t affect the currency exchange rates. If the value of your invested currency falls against your local currency then you may face loss when you convert it.
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Investment Risks
At a certain level or life, we all want to invest in something so that you can earn some extra cases. Investment is not a hard task if you know how and where to invest and when enter and exit from any trade. But there are two types of risk when you are investing somewhere what you must need to manage.
- Opportunity risk:When you are in the trading market then you will find opportunities now and then and once you open a position then in ties a certain amount of money with that trade that cannot be used until that trade is close. It is a common problem so whenever you find opportunities then you must choose the best one for you to invest so that you don’t need to regret it. You also need to keep in mind that this thing can happen and it is normal, if you find an opportunity and close the first one to open a new trade then you might hurt your account.
- Concentration risk:Traders often think about keeping an eye on every stock or currency pair in the market and it is quite impossible to keep an idea of every currency pair and stock. As a result, they cannot give their proper attention to any of them and misses perfect profitable opportunities. You are not told you to concentrate just in one place rather than a few selected pairs and stock because concentrating in just one place might not be a better idea after all.
So in this article, we have talked about a few important risks that a trader must aware of for having a safe trading career.