Market Risk Is A Risk You Take When You Invest In The Market

Category: Finance, Currency Trading.

Often, investors get so caught up with how much money they expect to make in their portfolio that they fail to think about protecting what they already have. Protecting your property or privacy is instinctive.

As an investor, your number one priority should be to protect your capital, once that s sorted out you can focus on putting your money to work for you. There are many ways we protect our property, but one thing very few people do is protect the value of their portfolio. Market risk is a risk you take when you invest in the market. We deposit our money in the bank or in a safe deposit box, with little thought as to how inflation, market and currency risks will impact on its value. If the particular market you have invested in( stocks, bonds etc, real estate. ) drops, the value of your investment will drop. If one or two markets experience a decline, the value of your portfolio will suffer less. This risk can be limited by diversifying your money in different markets, by doing this you reduce the exposure of your portfolio to any one market.

Inflation risk is another risk the value of your portfolio faces. As inflation continues year by year, every$ 1 you own will be worth less and less, reducing the value of your savings and investments. Inflation decreases the purchasing power of your money. If you have invested conservatively and have a large percentage of your capital in bank accounts, even though it, CDs and bonds will appear that you are earning money, with the effect of inflation you could actually be losing money. If one countries interest rate less inflation is higher than another s there s a pretty good chance the value of the currency in that country is going to go up. Inflation and interest rates affect the Forex market in a pretty predictable way.

This happens because international investors seek to invest their currency where it can gain the most, placing increasing demand on the currency which pushes the value up. Many investors choose a variety of investments from their home country for their portfolio. You can use this predictable pattern to make money in the Forex market. This does make sense, investing in a, after all market you know little about can add additional risk. The end result however can be that your entire investment portfolio will be held in a certain currency, if you re from the U. There will also be a lot more information available for markets close to home than further away, and the availability of relevant timely information is very important for decision making. S most of your investments( the stock market, real estate, bonds) are probably in U.

The disadvantage of this is that your portfolio is also exposed to currency risk, if the value of the U. S dollars. S. dollar drops, the value of your portfolio also drops. You can limit your exposure to currency fluctuations by taking out a hedge in the Forex market. If your home currency is worth less, the price of imported products is likely to go up and your buying power for an international holiday will also be lower.

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