SHARE DEALING RISKS

Please find information on Share Dealing risks in the guide below.

        

Share dealing has become very easy thanks to online platforms provided by stock brokers. They allow us to buy and sell shares quickly and efficiently via our own trading accounts. Being online, your account allows you to trade shares from any location in the world. But there are always risks to take into consideration as with any form of investment trade.

What are the Risks?

Anyone who chooses to partake in online share dealing puts their money at a certain level of risk. The main one would be that no matter how experienced a trader you are, you receive no guarantee that you will receive returns on your trades. In fact, you could lose all of your invested funds.

While share dealing is generally viewed as a lower-risk form of trade than other types such as CFDs trading due to its lower exposure to market volatility, nevertheless it is still affected by fluctuations in the market.

Financial markets are constantly changing and evolving as is the global economy. So, while your shares may have been a surefire winner when you bought them, they may go down in value if the company experiences difficulties or the general economy enters a downturn (thus affecting all businesses). You might even end up sitting on shares that turn effectively worthless.

What if the company goes bust? You may not be liable but you are unlikely to receive your money until they have dealt with paying off their deficit. Shareholders are always the last to receive payment in the event of a company going broke.

The type of share dealing contract you open also has an effect on your risk. Some brokers offer extended settlement contracts, which are made on margin. Margin trading always carries a high risk of loss.

Am I Suited to Share Dealing?

Not everyone suits share dealing. If you are interested in shares but aren't prepared for the added time commitment and technical analysis of direct dealing, you can invest through other avenues. Try an investment fund or trust, run by an expert investment manager. If you aren't sure as to your suitability for share dealing, speak to an independent advisor.

How Can I Manage the Risks?

If you want to trade shares, it is really important that you take the time to carry out some research and analysis.

This might sound like more trouble than its worth, but good analysis and research can make a significant difference to success. The better you know your product, the more you can use it to your advantage. For instance, you will want to know about the past performance of a company, read about various opinions on their future chances and so on.

Diversification is very important for your overall portfolio. By broadening the types of companies you invest in, you are diversifying or spreading your risks. This is often described as "not putting all your eggs in one basket." This strategy is recommended by many financial advisors and means that if one of your investments falls into a loss, you have others which are still providing returns.

If you are new to the business of share dealing, it might be worth choosing a broker that offers additional advisory and assistance services. This may cost extra but having an expert at hand to help you make the wisest decisions can be worth it in the long run.

They might provide you with technical analysis of your investments:

Volatility

Daily changes to the price of your portfolio will be detected.

Risk Ratio

They can detect which areas of your portfolio are more risky than others.

Correlation

This shows a linear correlation of your portfolio.

Market Beta

Market Beta is a linear regression or slop of a single share

By using technical patterns and detection methods, you are able to improve your portfolio and make changes if necessary.

Important Note:

Which Way To Pay Australia is an independent online comparison website. Please note that while part of the site content centers on the review and comparison of financial products, we do not at any time encourage or recommended site visitors to begin financial share dealing or to invest in any way on any index, commodity, currency, stock or share. Please make sure that you are fully aware of the product before you begin any transactions with share dealing.

Which Way To Pay Australia takes reasonable measures to ensure that data on the website is accurate. However, we are not aware of your personal investment goals or needs. The website content is designed for information and interest only.

We would recommend that if you are unclear about your suitability for financial spread betting that you seek independent financial advice.

Which Way To Pay Australia has outlined some of the risks involved in share dealing. If you are considering a broker or platform, make sure that you gain a full risk document from the company with which you intend to trade. There are many positive aspects to this type of trading, but it is wise to realise what the risks are when dealing with any type of investment trde. Once you are fully prepared, it is up to you alone to decide how to use share dealing.

        


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