Stock market risks refer to the potential for financial loss associated with investing in the stock market. These risks can arise from various factors, including market volatility, economic changes, interest rate fluctuations, company performance, geopolitical events, and investor sentiment.
Key types of stock market risks include:
1. **Market Risk**: The risk of losses due to overall market movements, affecting all investments within the stock market.
2. **Specific Risk**: The risk associated with a particular company or industry, which can be mitigated through diversification.
3. **Liquidity Risk**: The risk that an investor may not be able to buy or sell a stock quickly without affecting its price significantly.
4. **Credit Risk**: The risk that a company may default on its financial obligations, impacting its stock value.
5. **Interest Rate Risk**: The risk that changes in interest rates may negatively affect stock prices, especially in certain sectors.
6. **Currency Risk**: The risk arising from fluctuations in currency exchange rates that can affect international investments.
Understanding these risks is crucial for investors to make informed decisions, manage their portfolios effectively, and set appropriate risk tolerance levels.
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