Your investments are always exposed to different types of risks. These risks can fall under two major categories: the market risk and specific risk. Now, these categories are further divided into different classifications. However, what’s important is that you’re aware of certain market risks that will affect your investments throughout your investing journey or in this regard you must take advises from experts like HQBroker.
What is a market risk?
A market risk is the probability that you will lose your money because of a variety of factors. These factors affect the overall performance of the financial market. Also, you cannot remove this risk no matter how diversified your portfolio is. That’s why they are also called “systematic risks.” One good thing is that you can hedge against it.
Market risks usually come from events that have widespread repercussions, like recessions, political conflicts, interest rate changes, natural disasters or calamities, and terrorist attacks.
In other words, these risks are inherent in all kinds of investments.
Market Risk Kinds
The following are the most common kinds of market risks.
Currency risks may be the most common market risk for investors. Since they’re trying to earn money, they will inevitably try to track the movement of money.
Their investments will always be affected by any movement in currency rates. Forex traders are the most vulnerable to such risks, especially if he holds particular currencies that face volatile movements.
The fundamental factors that can alleviate or intensify this risk include interest rate changes and unemployment claims.
This is for the stock market, where the prices change. In many ways, stocks are more prone to sport higher associated risks compared with other investment classes, like government bonds, commodities, and real estate. Small-caps stocks that are traded on emerging markets also tend to be extremely unstable.
This one’s the risk associated with the fluctuation of the overall prices of goods and services in a particular country. Of course, when inflation does not go your way, it will cause harm to your investment. Inflation may affect stocks, forex, and other asset classes.
Commodity risks are the probability of fluctuating commodity prices, such as crude oil and corn. Commodity investors know that commodity prices can sometimes be volatile in the short term, but they can also follow prolonged cycles of elevation or slumps.
Interest Rate Risk
Interest rate risks make the value of the security fall, whether it be due to an increase in interest rate or a decrease thereof. Changing interest rates are also intertwined with volatility.
Investing teaches traders to accept rewards and risks in one package. That means that you can either win without friction, or win by conquering all those risks. The most important thing to remember is to be prudent and careful. Think methodically and always remember that a systematic approach is the best way to go.