Share prices go down as well as up. Investors can reduce their risk by doing their homework and always knowing exactly what they’re investing in. Trading securities such as shares can be rewarding but investors should always be aware of the risks involved when trading investment products. Many variables can affect your wealth.
Some shares can be illiquid, meaning that a share can be difficult to buy and sell. Under certain trading conditions it may be difficult or impossible to liquidate a position due to suspension of trading. This may occur, for example, if the price rises or falls in one trade to such an extent that trading is suspended or restricted. Placing a stop-loss order will not necessarily limit your losses to the intended amounts, because market conditions could make it impossible to execute such an order at the stipulated price. Furthermore, trading in a certain companies’ shares may be suspended due to that company not meeting one or more listing requirements.
If a company goes bankrupt, shareholders may lose the entire value of their investment and ordinary shareholders only receive what remains after creditors, preference shareholders and other stakeholders have been paid their due.
Scandals, such as the revelation of fraud or poor corporate governance, can hurt the share price because share prices factor in the markets’ view of management’s competence and integrity.
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