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Risk Management: Stock Trading vs. Stock Investing

For garnering the wholesome and duly accrued benefits in any business venture, having a proper plan of action for managing the involved risks is very important. This lets you, as a responsible investor, ascertain the tasks involved in keeping your market-capital stable during testing times. Risk management involves measuring and analyzing the potential threat to your investment in the form of risk. As an investor, you must be sure of the methods involved in weighing and possibly mitigating the risk-factor so that optimum gains can be yielded.

Often the experts compare the risk management involved in trading with that in general investing. Due to the invariable difference between the type of investment involved, risk management can also be taken to be different. It is needless to say that this changes the entire scope of risk-management in both scenarios. Trading involves periodic buying and selling of stocks and therefore, the risks involved pertain solely to the stock-options and evaluation. The stock-retention time is generally quite low in trading. 

On the other hand, investment is a long term buying and holding a stock over some time. By the very nature, the holding time is an important factor in investing. There are differences involved in risk management in trading and those in investing. Thus, the following points must be considered:

  1. In trading, the short-term market fluctuations have a much larger impact. The market situation over a short period dictates the time of selling of stock-selling.
  2. In investment, the long term retention of stock and the long-term stock-evaluation are important points for risk-management.  This means that the nature of stock and the long-term effect on its valuation are factors to be considered for effective risk management. 
  3. For trading as well as for investing, the holding size depends on the amount of capital that you can invest. A larger capital may not mean a larger holding, given the fact that an investor may choose to retain surplus funds for trading while limiting the size of the holding. This is a pragmatic approach for risk-management, as it gives you sufficient reserves while dealing with depletion of stock/capital due to a loss.
  4. Diversification is very important when it comes to cushioning your reserves from the possibility of significant loss. A wide-ranging investment portfolio, be it in stocks or general capital investment means that your investment holdings are not tied-up or locked to limited options. Alternately, this means that in the event of loss, returns from other holdings or investment channels can help you bear it.

Tradebulls offer secure options for risk management and offer detailed guidance for re-investment or compounding. The credible advice that is offered to potential investors is more likely to make your funds grow optimally. At Tradebulls, we focus on long-term customer-gains. The techniques for forecasting risk-management are tested for proven benefits.