These factors will make you scream as they will cause losses in trades where you should have earned the large profit. Some of those factors you can control and some of those you can’t.
No matter what kind of risk causes the loss, you are the one that can reduce it. The only question is whether you are willing to do that. If you can’t settle for a small loss and you push the luck, then you shouldn’t trade on the stocks exchange. The perfect place for a trader like you is the binary options market. Just look at Fintech LTD as recommended at Top 7 Binary Robots, and you will understand why it is smarter to trade binary options with that kind of mindset.
Volatility – A risk you have to live with
Volatility is the tendency of the price to fluctuate. It’s calculated on a yearly basis, but no calculation can predict it accurately. It is also known as involuntary (market) risk as you can’t influence it. It is caused by the events that affect everything from a single company to the whole trading market.
Do note that the volatility doesn’t determine the direction in which the prices will go, just the general movement. There have been cases in which the volatility caused different effects on various stocks (some gained value, while others lost it).
The high volatility of the market may be due to several events.
– Inflation aka purchasing power risk, as it changes the value of the goods and services provided by the companies. It can be caused by deliberate actions of a government, and it can also happen due to other unforeseen events.
– Economic events like regulations, interest rate changes, and tax revisions may cause ripples in the economy that may impact whole stock market on a worldwide level.
– Any unexpected geopolitical event can cause an increase in the volatility of the stock exchange. A new conflict in the Middle East may lead to the increase of the disability in the region. This causes the growth of the oil price and that, as we all know, has a major impact on the economy of all countries. That effect causes increased costs of all goods.
Wrong timing increases the potential risk
The general idea behind trading stocks is to buy them when they are at their lowest price and sell them when they reach the peak price. It’s quite simple when you read it, but it’s very hard to implement it in trading.
When a trader finishes their research, they will buy stocks to sell them when their price goes up. But a wrong timing can make you buy stocks, and their price may go further down. Stocks may also become stagnant, and their price will remain same. If you fail to sell them on time, then you might lose money on that trade.
You can also buy stocks and find out that an event caused the further drop in their price. You might be left with stocks whose price is far below the price you paid.