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Many people make numerous calculations before taking the steps associated with investing their money in the financial market. Fear of danger and loss at any time.
Some people often fall into the trap of miscalculating or misunderstanding financial market risks and their strategies, which prevents them from investing their remaining funds out of fear, or losing money by following unclear strategies.
The state of “uncertainty” facing the global economy, and the broader challenges it faces, is affecting people’s propensity to invest, so some people would rather stay away from the risk of the stock market and choose industries that are safer for them than gold , Also represented by assets such as real estate to avoid risks.
Risks in financial markets arise primarily from two factors:
- First: The risks associated with the entire market, known as systemic risk, can be dealt with through well-researched strategies with an accurate understanding of the market.
- Second: Abnormal risks, related to economic recession or political turmoil, interest rate changes, geopolitical developments, etc.
This is in addition to the risks associated with the stock and specific companies and will depend on each company’s condition, financial performance, the state of the industry in which it operates and its impact on related developments.
price fluctuations
Cairo-based financial market expert Hanan Ramses said in an exclusive statement to Sky Arab Economic News that price volatility is one of the main factors that make it easier for investors to take risks.
She pointed to the “wrong choice” of stocks and companies to invest in as one of the issues raising the risk ceiling.
She continued: “Few investors have the capacity to take risk on a large scale and bear the consequences… The main concern of investors – especially in times of economic uncertainty – is investing their surplus A tool for helping with a relatively guaranteed return.”
Financial market experts emphasize that while financial markets experience waves of volatility that prompt traders to be adventurous, it must be based on sound science (financial and technical analysis of stocks and companies, consideration of economic factor). public, through financial experts) in ways that help investors make proactive decisions in this situation.
She added, “In a fragile market, the risk ratio goes up, and when the market is strong and built on a strong liquidity foundation, the risk ratio goes down.” And there will be losses.
For risk strategies during recessions and downturns, financial market experts recommend that traders do the following:
- Trade only with leftover funds (no risk of selling your own existing assets).
- Select stocks and companies on a strong and sound basis (with the help of company analysts).
- Invest in stocks with strong financials.
- Focus on “defensive sectors”—those that have demonstrated resilience to economic shocks and that have sustained demand, such as food and beverages, healthcare and pharmaceuticals, or building and construction.
- Define profit and loss limits in risk strategies.
She pointed out that investing in the currency market has a unique advantage, which is not available in investing in real estate, gold and other value-preserving assets, that is, liquidity can be obtained at any time by temporarily selling stocks.
portfolio diversification
Economist Dr El-Sayed Khadr added to the advice provided by Ramses on the importance of portfolio “diversification”, i.e. not investing in one sector or one company, and added to the “Sky News Arab Economy” The website stresses the importance of working to spread an investing culture. In markets that lack such a culture, this will revitalize and strengthen those markets.
He added: “In some emerging markets, the stock market often lacks good stock marketing and promotion, and also lacks the creation of a clear investment culture to clarify risks and deal with market constraints and strategies.”
The economist noted that “any investment carries some form of risk, albeit in different proportions…the real crisis is the effect of risk on conducting experiments and continuing them,” noting that money markets have important Investing advantages, and investors having a genuine investment culture based on a well-thought-out fundamental will help you get the most out of the market.
precious reminder
In this context, a report released by Investopedia also proposes a set of techniques for dealing with market risks, whether it is systemic risks related to the market itself, or risks related to the development of monetary and financial policies and the impact of geopolitical developments. , as follows:
- Focus on interest rates: To manage interest rate risk, keep an eye on monetary policy and be prepared to adjust your investments in response to changes in interest rates. For example, if you’re heavily invested in bonds and interest rates are rising, you may need to adjust your investments to focus on short-term bonds.
- Maintain Liquidity: When markets are volatile, it can be difficult to buy or sell assets within your price range, especially if you need to liquidate positions urgently. If the market crashes, liquidity can be difficult no matter what type of stock you buy. In more normal circumstances, however, you can save liquidity by sticking to stocks with a lower cost (the transaction cost of that stock) to make trading easier.
- Invest in real industries: Some industries tend to do well even when the overall economy is in a downturn. People still need to turn on the lights (electricity industry), still need to eat (restaurant industry), still need toilet paper, toothpaste, etc. By putting some of your money on commodities, you can still see returns in a recession.
- Take the long view: Short-term traders are more sensitive to volatility.
Tips for Understanding Risk Limits
Moreover, Mohab Ajeeneh, Head of Technical Analysis at Beltone Holdings, explained in an exclusive statement to the Sky News Arab Economy website that investors are fleeing risk in the currency market by turning to other investment opportunities. From their point of view, like real estate, they think it’s better than taking risks in the stock market, which has the potential to go up or down. Some people prefer less risky investment opportunities, especially since certain markets are considered a promising stock market with many different and diversified investment opportunities.
Ajeeneh offers investors a range of tips for coping with risk, the most important of which are:
- Invest in the currency market without resorting to debt, especially for inexperienced people.
- If an investor has no experience in the money market, he must invest his funds in instruments with a specific return from the very beginning.
- Before entering the market, companies must be fully evaluated, especially since there are many and varied companies in different industries.
- Seek help from companies (brokers) with extensive investment experience in making investment decisions.
- Prioritize long-term investment strategies.
He explained that there is no specific limit to the risk, pointing out that there are risks in any financial market in the world, but the advantage is that it is a diversified market that does not only rely on stocks.