Best tips for risk management


Risk Management In The Stock Market

You should be aware of the main risksfunds into the market at one time.Speculative
associated with investing in listed equityRisk: If an investment is described as
securities.Some of these risks are:Overallspeculative you should be aware that the
market risk: This is the risk of loss byinvestment 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 factorsinvest in speculative investments unless you
including political, economic, taxation orunderstand and accept the risks fully and are
legislative. Specific examples includeprepared to accept any resultant loss.Trading
changes in interest rates, political changes,in the stock market may involve more risk.
changes in superannuation laws, internalTrading is the same as operating a small
crises or natural disasters. Market risk canbusiness. To survive, you must manage all
be minimised by having a spread ofaspects of your business in a manner that
investments across different types ofensures your long term sustainability. Risk
assets.Global risk: This is the vulnerabilitymanagement is the most important aspect of
of an investment to international events ortrading and is often neglected by many
market factors. This would include movementstraders. This may account for the high
in exchange rates, changes in trade or tarifffailure rate of traders.Risk management
policies and changes in international or bondinvolves setting rules and guidelines that
markets.Sector risk: The risks associatedkeep your risk at a level that you are
with an industry's specific products orcomfortable with. Risk in a trading sense
services such as, demand for the product orrefers to the possibility of losing money in
service; commodity prices; the economic andthe market place (market exposure). The main
industry cycles; changes in consumptionvariables that affect this liability are
patterns; lifestyle and technology changes.listed below:* Trade position size* Stop loss
This may be minimised by detailed research tosize* Market tracking abilities* Volatility
identify quality investments, reviewing theirof sharesIf we are able to control these
performance and their place in avariables then we can control risk. This
portfolio.Equity specific asset risk: Risksshould always be one of your principal
associated with the specific investment, forconsiderations 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 andincluding HomeTrader - Australia's leading
fixed-cost structure; litigation; competitionstock market education centres. We focus on
levels; liquidity of the investment.Timingteaching you how to create wealth through the
Risk: The possibility that you enter theshare/stock market using a customised trading
market at a bad time - for example, justplan or system that is right for you, your
before a fall in the share market. This cansituation and your goals.
be minimised by not investing all of your



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