So-called legislative risk is the risk that the government may alter laws or bring in new tax policies that change the basis on which previous investment decisions have been made. Legislative risk is viewed as a huge risk by investors – what was given as a competitive advantage by one government may then be taken …
If a company offers additional equities to market, perhaps to raise revenue or fund a new venture, buy a competitor, or launch a new product, the short term result is that the existing value and proportional ownership reduces. It is not automatically a bad thing: if the company is successful in its aims, profits will …
Investment horizon is the length of time that an investor proposes to hold a portfolio or investment. Generally speaking, if an investor plans to hold a portfolio for several decades, they would probably invest in more high-risk products early on and, as the length of the horizon reduces (i.e. approaching retirement), would seek to move …
Investors should always be aware of the risk that some equities may either be worthless or not actually exist – and therefore any money invested might fall straight into the hands of the criminal who has set it up to catch them out. Often these schemes promise returns which are too great. Risk can be …
Poor risk management by an investor or fund manager, such as failing to identify risk, sub-standard analysis, inability to adequately mitigate and so on, can lead to a loss. Poor risk-management decisions can escalate rapidly with catastrophic consequences. The financial crisis of 2008 can be traced back to the poor decisions made in the subprime …
By contrast, currency exchange risk is an example of systematic market risk that cannot be eliminated or reduced. Put simply, when an asset or investment is held in a foreign currency, there is always a risk that the currency will lose value due to exchange rate fluctuations against the investor’s domestic currency. What is Currency …
Investors manage risk by ensuring that investments are spread across a diverse range of products and markets. By investing in different areas and types of assets, investors hope to both maximise investment and reduce the risk of loss. Investors expect their brokers to help them build portfolios that meet their investment objectives. Diversification, which is …
Liquidity risk is the risk that an investor may not be able to sell assets quickly enough without a loss of capital or a reduction in price. If there are few buyers for your type of share, they may take longer than expected to sell and they may sell at a lower price. What Is …
When investors believe something is about to happen they will take action, such as selling off their equities to avoid losses, which can impact prices. This can also signal the onset of a bear market. In any economy, confidence levels influence and provide information on social and financial developments in the future. For companies and …
The market or wider economy may collapse, or just ‘go bad’ if there is a financial downturn. It could be due to a specific event (such as a terrorist attack) or the impact of a specific set of circumstances (such as the global pandemic and the subprime mortgage market crisis which led to an international …
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Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Trading in financial instruments may not be suitable for all investors, and is only intended for people over 18.
