Trading on the stock market is not all fun and games and holidays on the beach. Like most investment platforms, it comes with its fair share of risks. This means that you run a risk of losing money by either being in a rush to disposeof shares or to invest wrongly. Making an investment based on hype is never a good idea.
Risks in the stock market range from product specific risks to company specific ones. That is why you should find out as much as you can about a company or product before putting your money on it. Investment masters will advise you to run a check on say share price for Lloyds or your company of interest to determine if it’s worth risking.
Risks Faced by Stocks
The risks discussed herein are universal, not specific. They are not limited to country, company, or the specific product.
- Product
When product prices fluctuate, the companies that sell them mare affected. The effect is positive if prices are on an upswing and negative when the prices go down. It is tempting to imagine that only product based companies will feel the effect of price fluctuation. The truth is, if people are spending more on buying products, they will curtail their spending in other sectors. The effect is a sort of seesaw; when prices are up, other sectors suffer but when they go down, the other sectors benefit while product-based ones feel the pinch.
- Bad Press
Bad press is disastrous for companies. Every company is at risk of finding itself in the glaring lights of the media. A headline screaming that a certain product has been recalled could bring the manufacturers and distributors of the said product on their knees. Building trust in the product or any other from that brand takes some serious investment in rebranding and advertisements. Nobody wants to invest in such a company. Itis a huge risk.
- Obsolescence Risk
This means that a company is about to become obsolete. Many companies join the dodos when the market gets flooded with cheaper versions of their product. This is only expected to get worse with time because technology makes it so much easier to imitate.
- Legislative Risk
The relationship between a company and the laws that govern the land is oftentimes an uneasy one. Companies and industries are always on tenterhooks with regard to the introductionof regulations that can end up being constraining. The risks involved here include:
- Antitrust suit
- New regulations
- New standards of operation
- Taxes
- Inflationary and Interest Rate Risk
This risk may or may not affect interest rates. Inflation is sometimes caused by rising interest rates. This is bad news for companies that rely on financing to run efficiently because the rising costs make it difficult to keep the company afloat. If this is coupled with a weak consumer, it is an economic disaster waiting to happen.
Taking into consideration these risks, it becomes necessary to educate yourself on matters to do with trading, which means sites that deal in trading in stocks like share price for Lloyds become your regular sources of information on shares and companies to invest in.
