Trading Portfolio Risk – Knowing the Basics

Trading is one of the most recognizable attributes of an open market, and millions of people buy and sell shares in one form or another.  As you buy and sell, you’ll build your portfolio accordingly.  Most experts agree that diversification is important when investing, since it can help to reduce your trading portfolio risk.  There are a few key types of risk that you may face when you start trading, and knowing the basics of each of them will help you protect yourself and your finances.  Once you know the risks you’ll be able to plan accordingly and make the smartest trades possible.

Trading portfolio risk can only be properly assessed by looking at a number of different factors.  The first is equity risk, and it is the easiest to recognize.  Equity risk is essentially linked to stock prices, and the chance of serious change in stock value is the main risk you’ll have to consider here.  A number of things can be done to assess this risk, and research is vital.  Another type of trading portfolio risk to be aware of is interest rate risk.  Loans and other forms of credit are influenced tremendously by interest rates, and the value of your portfolio could rise or fall depending on interest rates.

Foreign issues can contribute to trading portfolio risk as well.  Currency risk is what this is commonly referred to as, and it is directly impacted by foreign exchange rates.  If you’ve invested in currency or have overseas holdings, this type of trading portfolio risk may be a very real issue for you.  Finally, commodity risk is also worth considering depending upon the type of investments you’ve made.  That’s because some investments may be directly or indirectly impacted by commodity prices.  Things like oil, grain, corn, and copper may all play a role in your various stocks so be sure that you factor them into your trading decisions.

Obviously, there’s much more to trading portfolio risk than most realize at first.  It takes real diligence to ensure that you don’t run the risk of losing sizeable sums, and all of the previously mentioned risks are well worth factoring into your considerations.  Take the time to assess risks and to keep an eye on the various factors that influence your portfolio valuation and you’ll ensure that you don’t run the risk of losing your investments.  A bit of research and vigilance can go a long way.

About Richard Wilson