Bulls n' Bears

The Risks of Volatility

Volatility is a two=edged weapon when investing. One must have some volatility to have any reasonable prospect of profit, apart from that from stock dividends. Dividends are usually well below that available from bank interest rate (although not at the moment) and the reason for investing in the stock market is the additional long=term growth available.

With that prospect of market growth comes a measure of volatility  But it must be within limits. If a financial instrument is subject to wild fluctuations in price it is very difficult.

Forex trading brokers will offer additional leverage over-and-above the intrinsic volatility of the  currencies, commodities or precious metals. Ten to one or more is commonly available. This leverage is very appealing ar first sight because it can enhance your profits. But it is very dangerous. You can lose money even if you're right about the overall direction of the market because a short-term fluctuation can close out your position, or you see the market going against you and close it out yourself, only to see the market turn around and proceed as you expected, while you are nervous of being whipsawed. There is a very amusing "Whipsaw Song" on Youtube which shows how common this experience is.

Investing money is basically a gamble. Some investments are high-risk gambles and some are low-risk. You must decide what sort of risk you can tolerate psychologically and what you can afford to lose. " Know thyself" is essential in successful investing - ast it is in Life generally.

Any loss makes a big demand on future gains needed to reverse that loss before any profits are made. Generally it is good to try to reduce volatility. There are so many risks inherent in investing without taking on additional risks.

If you have nerves of steel and decide to follow a high-risk strategy then you will need to spend a lot more time managing the investment. If you can only manage your investments on a part-time basis then don't indulge in high-risk investments. Your ulcers will end up making the medicos rich.

No investment is without risk., Even a bank deposit has inflation as a factor or potential bank failure, remote though that may seem to be. The key is to manage and reduce risk, and volatility is a big risk factor.