WHY DO YOU
ENTER
The very first question arise why do people
enter in this market knowing the truth that there is a lot of risk financially
as well as mentally and the Simple answer to this question is the return on
investment.
People of our society wants to earn more,
they want to utilize their idle resources to create more wealth so that they
can achieve their life goals and create a great future.
Since Stone Age there is a quote “No Risk, No
Return” this quote excites us and so does share market, therefore people end up
in this market thinking that taking the risk will definitely make them rich.
What they don’t get a concept known as risk management.
Risk is an important part of a life, we can’t
neglect it. We face risk each and every phase of our life. Hence every person
who is entering in any field must understand the importance of risk.
Risk gets three types of reaction
1. Avoidance: People avoid risk by
eliminating its cause and in share market you can avoid it by leaving share
market.
2. Mitigation: generally every great
investor or trader in share market always try to decrease the risk by studying
and understanding the basics of market.
3. Ignoring: this is the worst case
scenario for a trader where he wants to neglect the risk associated in the
market.
Generally people who wants to enter in this
market don’t know the risk associated in the market so let us brief those risk
for you
Risks in the share market
1. Capital risk: chances to lose
your own capital in market, in fixed deposits with there is no capital risk.
2. Market risk: in short term market
risk is higher as if market is falling it may also pull down the prices of your
stocks.
3. Political risk: policies of
government affects the share market.
4. Inflationary risk: when the real return on your investment is
reduced due to inflation eroding the purchasing power of your funds by the time
they mature.
5. Conservative Risk: risk of not taking risk,
younger people can take more risk than older people.
6. Risk Associated with Emotions: a
great investor is one who can control its emotions and think logically while
taking any decision.
Understanding the risk helps us in taking an
efficient and effective decision.
Hence before entering the market one must understand the risk associated with it.
It is a foolish decision to jump into the
hole before knowing every details of it.
So ask yourself this question before entering
into any transaction in share market did I consider all the risk associated
with it. Sometimes to earn more people lose their hard earned money.
The basic purpose of this chapter is to alert
people about the risk in the market as many people enter into the market before
taking risk into the account which generally result in losing capital and
frustration.
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