Market Risk Limits
The management of market risk is very difficult because the value of financial instruments traded in the markets changes very rapidly. It is possible for stocks or bonds to go from their full value to zero in just a couple of days. These instances have happened during various market crises such as the dot-com bubble, […]
External Loss Data in Operational Risk Management
In the previous article, we studied how a firm can collect internal loss data about the adverse events that take place within its boundaries. However, all operational risk managers know that internal events are not the only ones that can have a negative outcome. Over the years, companies have realized that even if they do […]
Reinsurance Programs – Meaning, Need and its Benefits
In the previous articles, we have already studied about what reinsurance is. However, we have assumed that most ceding insurance companies buy only one reinsurance policy in order to cover their risks. However, this is not the case in reality. In real life, ceding insurance companies have very complex portfolios. As a result, they need […]
The Corporatization of the NGOs and How It Impacts Funders, Beneficiaries, and Others
The Corporatization of NGOs and the Opinions of Experts In recent years, the NGOs or the Non Governmental Organizations have been corporatized as far as their mode of operation and processes are concerned. This is especially the case with those NGOs that rely on Big Ticket funding as well as are run by extremely wealthy […]
Role of HRD in Risk Management
These days, the importance of Human Resource Management can not be neglected especially when companies are operating in such a volatile and unstable environment. The department plays a vital role in risk management. Needless to say, handling people is one of the most difficult tasks in the world and human resource department of any company […]
In stock market there is strong relationship between risk and return. Greater the risk, greater the return generally! In financial terminology risk management is the process of identifying and assessing the risk and then developing strategies to manage and minimize the same while maximizing the returns.
Every investment demands a certain amount of risk and for an investor to assume this risk he has to be compensated duly. This compensation is in the form of something called as the risk premium or simply the premium. Risk is therefore central to stock markets or investing because without risk there can be no gains. Successful investors use stock market risk management strategies to minimize the risk and maximize the gain.
In financial markets there are generally two types of risk; first the Market Risk and second the Inflation Risk.
The inflation risk is an important consideration in long term investments where as the market risk is more relevant in the short term. It is the market risk that can be managed and controlled to a certain extent, inflation risk cannot be controlled.
There are certain strategies that can be employed to mitigate the risk in a stock market. The strategies are as follows:
Ask Warren Buffet, the greatest investor of all time, what is your advice to investors and he says ‘don’t lose money!’ But stock market connotes risk and fortunately there are enough strategies for a wise investor to safeguard his money and ensure gain. A careful and timely exercise of these options helps you see of the risk involved.
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