The risks associated with stocks

SaxoInvestor

Saxo Group

Buying and selling stocks always comes with risk. There is no guarantee that you will make a profit, nor is there a guarantee that you will ever recoup your initial investment. As an investor, it is crucial that you are aware of the risks surrounding every transaction. Even if a stock seems like a “sure thing” to you, there are always risks involved.

Some important risks to consider include:

Market risk: It is impossible to know exactly what will happen to a company's stock price over time. The stock might go up, but it could just as easily go down. Unexpected events, such as market crashes or company troubles, could reduce the stock price, negatively affecting your investment.
Volatility risk: Stock prices are inherently volatile, and the degree of fluctuation can vary significantly depending on the sector. These fluctuations can take your portfolio on a rollercoaster ride, with some sectors experiencing more dramatic ups and downs than others.
Company liquidation: Companies succeed, and companies fail. This is another inevitable risk for you to keep in mind. If a company goes bankrupt and enters liquidation, the shares in that company may cease to exist. If this happens, your investment in that company becomes completely worthless.
Political and legislative risks: Companies are significantly influenced by the policies and legislation of the countries in which they operate. Changes in the political environment, including shifts in policies, rules, and laws, can negatively impact a company’s stock price. For instance, Germany’s decision to close all nuclear plants by 2022 provided a boost to companies supplying renewable energy, while energy companies faced substantial challenges due to the plant closures.