What are the various risk involved in Share Market?

Investing into share market is no child’s play, you need to have proper knowledge about it and you must take calculated risks in order to keep profiting from the share market. Learn about trading risk involvement in Zoid Research Gurukul.

Following are some of the universal risks which are faced by every stock faces regardless of their business profile

COMMODITY PRICE RISK

commodity price risk means the risk involved in the swing of commodity prices affecting the business. companies which are selling commodities make a profit when the prices go up but suffer very much when the prices drop. while the companies which use the commodities as some type of input face the opposite effect. Also, companies which have nothing to do with the commodities also face the commodity risk. as the prices of the commodities increase consumers stops the spending which affects the whole economy

HEADLINE RISK

This is the type of risk in which stories in the media will affect the company’s business as well as image. With the increase in the digital media and all types of channels, no company is safe from the headline risk. One bad news can cause the market backlash against the specific company or even the entire sector. Larger scale bad news sometimes also affects the economy along with the stocks which result in adverse effect on global economy.

RATING RISK

This type of risk occurs whenever a business is given a rating number either to achieve or to maintain. each and every business has a  rating number as far as the credit rating goes. the credit rating directly affects all the prices which a business will pay for financing. Publicly traded companies also have another rating number along with the credit rating and that number is known as the analyst rating. any change in that number mostly has an outsized psychological impact on the market. these ratings whether negative or positive often give you larger swings in the prices.

OBSOLESCENCE RISK

It is a risk that company’s business going to doom. Very few business live up to the expectations and none of them reaches that peak by keeping the same business procedure that they started with. The biggest obsolescence risk is that some other company may find a way to make same product at cheaper price. This type of risk will increase over time as the technology increases and the knowledge gaps shrinks.

DETECTION RISK

It is a risk where the responsible person like the auditor, compliance program, regulator or other authority will fail to find the outsourcing of money outside the company until it is too late. It may involve company’s management skimming out money out of the company improperly stated earnings or any other type of financial shenanigans. With this type of risk, the damage which is caused to the company’s reputation may be not repairable. and it is also possible that company may never recover from such event.

LEGISLATIVE RISK

This refers to the relationship between the government and the business. It means that the actions of the government like new rules or laws etc. will adversely affect the investors Holding’s in that company, This risk varies according to the industry but every industry has some kind of legislative risk.

INFLATIONARY RISK AND INTEREST RATE RISK

These two risks can happen separately or even work and happen together. Contextually speaking it refers to the problems which are caused to business which is in need of financing by the increasing rate of interests. Inflationary risk means that the chances of cash flow from an investment won’t be worth in the future because the purchasing power has changed due to the inflation.

MODEL RISK

In this type risk, the underlying model which includes basic assumptions and business models within the economy are wrong. If this happens it starts a domino effect which results in failing or struggling the company and in doing that they hurt the companies which are dependent on them

There is no such thing as a risk free investment in the stock market, so you need to make sure that if you are taking a risk, it is a calculated one.