Risk Taking And Trading
When you trade in the market, every penny that you make is a single penny lost by someone else. So if there are some traders who are making money every time then at the same time there is another group of traders who are losing money every time. The group of traders who are actually making money trading is a very small majority in reality and the major portion of traders are actually losing money in the market.
Learn more about it here as to why this happens in the financial market.
Understanding risk and its various techniques
What separates the profitable and the loss-making traders are the techniques to manage risk. The profitable traders understand what risk is all about and they do proper money management to protect their trading capital and generate profits. This does not mean that the profitable traders are always making money and that they never lose on any trade. This does not happen.
The profitable traders instead know which trades should be cut short and which trades should one hold on to. They also accept if their analysis is wrong and get out of the trade with a small stop loss.
Successful trading is all about managing your money
Money management and risk assessment are major factors that decide whether you will be successful as a trader or not. So it becomes very essential that you understand the risk when investing in the market.
What exactly is a risk? For someone who is new to this market, the risk would be the probability of losing money in the market. When you trade in the market you are exposing yourself to risks which mean that you could lose money in all probability.
When you buy a company stock then even if you are totally sure that the stock price will go up, there are still chances that something could happen that could cause the stock price to go down. Thus even on trades that you are 100% sure, there is a risk involved.
The different kinds of risks
The risk in the market is divided into the systematic and unsystematic risk. When you buy a stock you expose your capital to both these risks.
What could be the reasons that your stock price could crash? This could be if the business ventures of the company are going down or if the business margins of the company are declining. It could also be because of bad management or because of competition that is eating into the company margins. The risk could be anything and this is something that you need to take along with you when you buy the company stocks.