Risks Associated With Stock Market Investment

Well, there are two ways to invest in stocks. One, you invest in the local stock market through your brokerage account, and two, you invest through online trading platform. The first method requires sizeable investment and is also complicated process as you need to open Demat account. However, the second option is some what easy. You need to find a reliable platform, fund your account, choose assets you want to invest and start investing. It takes less than 30 minutes

If you are investing in the stock market, here are some common risks that you should know about

What is Short Selling

If you have been investing in the stock market, you might have come across a term short selling, what exactly is short selling?

Short selling means investors start selling their assets once the stock price reaches a certain high point. Let’s say an investor bought the stock for the price of $10. When the price reaches $13, he will start selling all of his stocks. Since this investor has a lot of stocks, and when he starts selling, the price starts going down. The small investors lose money whereas the big investor makes money.

Short selling is a technique used by the whales to make money from the stock market, they manipulate the market by buying a lot of stocks and selling a lot of stocks at once. When they start buying, demand will be created and the price goes up and when they start selling there will be supply and the price will go down.

Want to Invest? Be Aware of the Whales

Who are the whales?

Whale is the term used for big investors. They are present everywhere from the stock market to the crypto market.

What do whales do?

Whales put a lot of money on certain assets. When they start investing, the value of an asset will go up. At a certain point, the whales will start short-selling, thus causing the market to fall. While the whales make money, the rest of the investors, mostly small investors lose money.

Whales are notorious for causing market prices to fluctuate by buying in large quantities and then selling all of their holdings. When they buy, they create demand in the market. Demand creates a rise in the price. When the price has risen sufficiently, the whales begin to sell. When short selling occurs, there will be more supply, and we all know when there is supply the price will fall.

When you are investing, make sure you are aware of market manipulation.  

 Three Reasons Why You Might Make a Loss on Stock Market

There are numerous reasons why you might make a loss in the stock market. Here are some common reasons:

Recession: When there is a recession, stock prices begin to fall because businesses start making losses, or earn less profit.

Inflation: When there is inflation, prices of raw materials increase, and interest on loans increases, which increases the production cost, which will increase running costs, thus businesses will not make as much money as they used to. Therefore, the stock market will fall.

Market manipulation: You might have heard of the term whales. These are people who buy a lot of stocks and then start selling all of a sudden. When they buy stocks, the price begins to improve and then they sell, take profits, and move on.

Panic selling: Panic selling means investors start selling stocks when they suspect the market is going to crash. This will even further decrease the stock price, and the investors will make a loss in the stock market.

Stock Market Investment Risks

The reasons for the value of certain stocks going down and the reason for the entire stock market going down can be entirely different. If a business starts losing revenue and the profits decrease or the business starts making losses., the price of the stock of that company will also go down. When the stock market goes down, that might be due to recession or inflation. A recession on average lasts for one year. Therefore, if the stock market has gone down and it is due to a recession, you will have to wait for about a year for the market to improve.

Before a company gets listed on the stock exchange it has to get approval from the security board. When it gets approval, it starts selling IPO shares, which are primary shares. Once the IPO shares close, only then the company's stocks can be traded in the stock market. You can buy IPO shares for a cheap price, however, come IPO closes, the price will go high. If the company has managed to spark a lot of interest among the investors, the stock price as soon as the IPO closes, the stock price will go high. You can benefit by becoming early investors.

If the company is new in the stock market (because it has been recently listed), and if the company has a profitable business and has already built a big brand, you can start investing in these companies before the stock price skyrockets. Becoming an early investor has a great benefit. However, there is also a risk because a lot of companies overvalue their stock price and the early investors will be scammed. Likewise, big investors, popularly called whales, also frequently manipulated the market by pumping and then dumping. They do this by buying a lot of stocks and then when the price goes high, start selling.

Investing in Penny Stocks

Penny stocks can be an option for investment for those who do not have a lot of money to invest in the stock market but wants to try investing in low value stocks. However, investing can be risky because whales are notorious for pumping and dumping penny stocks which cause small investors to lose money. A better alternative is to find investment platforms where instead of buying share units, you can invest in the fraction of share. For instance, instead of buying Tesla share, you can invest $20 in tesla stocks. You also need to find good quality companies whose shares are underperforming but have the chance of appreciating later

How to Profit

Stock market is a beginner friendly investment option, however, before you enter into the stock market, you need to have a clear understanding of the stock market as well as in dept knowledge in business, finance, and investment. Well you do not have to be an expert but having knowledge on the market will help you choose the right stocks and use the right strategies to make profits. If you invest for a long term, you can profit form the stock market and there is no doubt about that.

The rule of the thumb is you do not make a loss until you sell your assets for a loss. Let' say you bought stocks at the price of $10 each and the price went down to $5. If you sell for the reduce price you will have a huge loss. But despite going down if you continue to hold your position, you might start profiting or at least recover the loss in the long run. However, this strategy will work only when you have invested in assets that have true potential. If you want to pull out your investment, you can do it as soon as it starts going down.

Stock Trading

You can of course make money trading stocks but for that you need a brokerage account and also a licence to trade. If this sounds complicated, there is Another easy way to trade stock. You can just join a trading app and then start trading form the app. However, if you do not have local trading app, you will have to try international trading app and these might not be working in your region. Trading is basically for experienced people, newbie tend to make a huge losses.