ALL >> Investing---Finance >> View Article
Risk Management!!
Risk is nothing but a probability that something awful is likely to happen tomorrow in course of the action to be taken today. Likewise investment risk is the risk associated with putting money into the stock markets with a hope of earning returns but with more chances of leading oneself into losses.
Financial risk is the term used for all the risks associated with financing, viz; for credit: the risk of defaults, for Debt: the risk of bad debts, for investment: the risk of loss of principal and unpaid dividends, for trading: the risk of changes in the stock prices or the implied volatility, for liquidity: Assets cannot be sold or liabilities cannot be met quickly.
To overcome this risky situation of ‘Hope for the best but be prepared for the worst’, a unique concept of Risk Management has been developed as a precautionary measure. Risk management is to recognize, evaluate, and prioritize the risks followed by finding out alternative resources to monitor, control the probability of happening of the event. The alternative resources could be to avoid the risks, transfer it to somebody else, reduce the impact ...
... or accept it.
However, the situation with stock markets is a bit different! There is a misconception that ‘higher the risks, higher are the returns’. But the risk/return trade off tells us that higher risk is associated with either the higher returns or higher losses. Risk premium in equity markets is the expected return from a stock or a share minus the risk free return. The actual return is the dividend yield plus capital gains. So it’s up to the investor to decide whether he is satisfied with the risk free returns or willing to knock the other risky door which has 50-50 chances of either losing everything or gaining fabulous returns. The financial (equity) risk management strategies provide for the protection against decrease in stock value, generation of liquidity, diversification of portfolio and defer capital gains tax.
The best way is to initially judge yourself whether you have the potential of either bearing or overcoming the risks through virtual trading mechanisms before entering into the real stock markets. The stock market works on the sentiments of the mass investors and the greed, fear and hope as a part of the mass human psychology will eternally boost the risk taking abilities of the investors.
For More Updates Visit http://www.niveza.in/
Add Comment
Investing / Finance Articles
1. Setting Up Your Company In Ireland: Key Considerations For Successful FormationAuthor: LSC and Partners - Corporate Tax Consultancy LSC
2. Mortgage Lenders edmonton – How Are They Going To Help You
Author: Dominion Lending Centres Ratefair
3. Why Managing An Smsf In Perth Can Maximize Your Retirement Potential?
Author: Daniel Stewart
4. The Future Of Cryptocurrencies: A Look Ahead
Author: Ethan
5. Unlocking The Power Of Biodiversity In Data Solutions & Rating Services
Author: By Inrate Team
6. The Role Of Chartered Tax Advisors: Ensuring Compliance And Maximizing Benefits
Author: Business Tax & Money House
7. Innovative Accounting Solutions For Modern Businesses
Author: Business Tax & Money House
8. Can Someone With Bad Credit Still Get A Short Term Loan Online?
Author: Jockey Ferguson is a financial adviser of Fast Pay
9. How To Manage Cash Flow For Online Retailers
Author: Thomas Edward
10. A Detailed Guide Set Up A Company In Ireland
Author: LSC and Partners - Corporate Tax Consultancy LSC
11. Rupay Credit Cards: Your Ticket To Exclusive Rewards And Benefits
Author: Priya
12. Top Upcoming Telegram Airdrops You Don’t Want To Miss!
Author: Cryptoreach
13. The Art Of Diversification - Building A Robust Portfolio For Long-term Stock Market Performance
Author: Broker Analysis
14. 10 Effective Strategies To Boost Real Estate Lead Generation In 2024
Author: Horizon Consultants
15. How To Choose The Best Financial Advisors In Indianapolis For Your Future
Author: Kurt Supe