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