Before you put your money in the market, it helps to understand the kinds of risks you may face. This article explains common risks in plain language so you can learn and make more informed choices. It does not tell you what to do with your money.
Market Risk
Market risk is the chance that the value of your investments will go down because of broad market moves. For example, when indices like the Nifty or Sensex fall, many stocks tend to fall with them. You cannot fully avoid market risk when you are invested in equities. Learning about it helps you set realistic expectations.
Volatility
Volatility means prices can swing up and down quickly. Some days or months may show big gains or big losses. High volatility can make it harder to stay calm and stick to a plan. Understanding volatility can help you decide how much risk you are comfortable taking and how long you might want to stay invested.
Company-Specific Risk
Even when the overall market is fine, a single company’s share price can drop because of poor results, bad news, or industry problems. This is often called company-specific or idiosyncratic risk. One way people try to reduce this is by spreading money across many companies (diversification), but that does not remove risk entirely.
Liquidity Risk
Liquidity risk is the risk that you may not be able to buy or sell when you want, or at a price you find acceptable. Less-traded stocks or markets under stress can have lower liquidity. It is useful to know that exiting a position is not always instant or at the last traded price.
Leverage Risk (Borrowed Money)
When you trade or invest using borrowed money (margin or leverage), your gains and losses can get magnified. You might lose more than what you put in. Products like futures and options involve leverage. Learning how leverage works is important before using such products.
Time Horizon and Risk
If you need your money back soon, you have less time to wait for markets to recover from a fall. That can make short-term investing riskier for your goals. Many educational resources suggest that a longer time horizon can sometimes help absorb short-term swings, but there is no guarantee of profit or protection from loss.
Summary
Risks in trading and investing include market risk, volatility, company-specific risk, liquidity risk, and leverage risk. Understanding these helps you learn and plan. This article is for education only and is not advice. Always do your own research and consider speaking to a qualified financial advisor.