| You should be aware of the main risks | | | | funds into the market at one time.Speculative |
| associated with investing in listed equity | | | | Risk: If an investment is described as |
| securities.Some of these risks are:Overall | | | | speculative you should be aware that the |
| market risk: This is the risk of loss by | | | | investment could rise significantly but also |
| reasons of movements in a market sector. | | | | fall by the same degree. You should not |
| These can be caused by any number of factors | | | | invest in speculative investments unless you |
| including political, economic, taxation or | | | | understand and accept the risks fully and are |
| legislative. Specific examples include | | | | prepared to accept any resultant loss.Trading |
| changes in interest rates, political changes, | | | | in the stock market may involve more risk. |
| changes in superannuation laws, internal | | | | Trading is the same as operating a small |
| crises or natural disasters. Market risk can | | | | business. To survive, you must manage all |
| be minimised by having a spread of | | | | aspects of your business in a manner that |
| investments across different types of | | | | ensures your long term sustainability. Risk |
| assets.Global risk: This is the vulnerability | | | | management is the most important aspect of |
| of an investment to international events or | | | | trading and is often neglected by many |
| market factors. This would include movements | | | | traders. This may account for the high |
| in exchange rates, changes in trade or tariff | | | | failure rate of traders.Risk management |
| policies and changes in international or bond | | | | involves setting rules and guidelines that |
| markets.Sector risk: The risks associated | | | | keep your risk at a level that you are |
| with an industry's specific products or | | | | comfortable with. Risk in a trading sense |
| services such as, demand for the product or | | | | refers to the possibility of losing money in |
| service; commodity prices; the economic and | | | | the market place (market exposure). The main |
| industry cycles; changes in consumption | | | | variables that affect this liability are |
| patterns; lifestyle and technology changes. | | | | listed below:* Trade position size* Stop loss |
| This may be minimised by detailed research to | | | | size* Market tracking abilities* Volatility |
| identify quality investments, reviewing their | | | | of sharesIf we are able to control these |
| performance and their place in a | | | | variables then we can control risk. This |
| portfolio.Equity specific asset risk: Risks | | | | should always be one of your principal |
| associated with the specific investment, for | | | | considerations when developing any trading |
| example, quality of the company's directors; | | | | system.Jon Lynch is Marketing Manager of the |
| the strength of management and key personnel; | | | | Capital Intelligence Group of companies, |
| profitability and asset base; debt level and | | | | including HomeTrader - Australia's leading |
| fixed-cost structure; litigation; competition | | | | stock market education centres. We focus on |
| levels; liquidity of the investment.Timing | | | | teaching you how to create wealth through the |
| Risk: The possibility that you enter the | | | | share/stock market using a customised trading |
| market at a bad time - for example, just | | | | plan or system that is right for you, your |
| before a fall in the share market. This can | | | | situation and your goals. |
| be minimised by not investing all of your | | | | |