Stock Trading - Risks

---

All stocks are subject to risk. When you invest in stocks and other securities, you face the risk that you might lose money. You need to understand the risks associated with investing as well as to firmly identify your personal risk tolerance level prior to investing in stocks or other securities. Some of the most common risk factors to be aware of with respect to investing in stocks are included below:

Stock prices fluctuate throughout the trading day and over longer terms, sometimes dramatically. The size and frequency of these price fluctuations are known as the stock's volatility. Volatility can be an important measure of investment risk—both market-wide and for an individual stock. A common measure of a stock’s volatility relative to the broader market is known as the stock’s beta, which is how a stock’s volatility compares to the market a whole. A stock that has a beta above 1.0 means it is more volatile than the overall market. Generally, growth stocks tend to be more volatile than value stocks.

Frequently, events in the economy or the business environment can affect an entire industry. For example, it's possible that high gas prices might lower the profits of transportation and delivery companies.

These two risks can operate separately or in tandem. Interest rate risk, in this context, simply refers to the challenges that a rising interest rate causes for businesses that need financing. As their costs go up with interest rate increases, it becomes harder for them to stay in business. If rates climb during a time of inflation—which often happens since increasing interest rates is a tool the Federal Reserve commonly uses to fight inflation—then a company might see its financing costs climb as the value of the dollars it's bringing in decreases.

Sometimes an entire industry might be in the midst of an exciting period of innovation and expansion and becomes popular with investors. Other times that same industry could be stagnant and have little investor appeal. Like the stock market as a whole, sectors, industries and individual companies tend to go through cycles, providing strong performance in some periods and disappointing performance in others.

Growth companies in particular often receive intense media and investor attention, and their stock prices may be higher than their current profits seem to warrant. That's because investors are buying the stock based on potential for future earnings, not on a history of past results. If the stock fulfills expectations, even investors who pay high prices might realize a profit. If not, the stock’s price might decline dramatically.

Any changes to analyst ratings on a company’s stock (from a “buy” to a “sell,” for instance) has the potential to impact the stock’s price. It’s possible a ratings shift, whether negative or positive, causes a price swing more pronounced than might seem justified by the events that led the ratings change. It can take time for the market to digest such ratings news.

This is the risk that a company's business is going the way of the dinosaur. Very few businesses live to be 100, and none of those reach that ripe age by keeping to the same business processes they started with. The biggest obsolescence risk is that someone will find a way to make a similar product at a cheaper price.

Detection risk is the risk that the auditor, compliance program, regulator or other authority will find problems, the proverbial skeletons in the closet. With detection risk, the damage to the company's reputation might be difficult to repair; and it's even possible that the company will never recover if the financial fraud was widespread.

This is the risk that government actions such as new legislation or a new regulation will constrain a corporation or industry, thereby adversely affecting an investor's holdings in that company or industry. This can include an antitrust suit, new regulations or standards, specific taxes and so on. For example, a new rule changing the review process for prescription drugs might affect the profitability of all pharmaceutical companies.

Microcap securities, sometimes referred to as penny stocks, include low-priced securities issued by small companies with low market capitalization. These securities are primarily traded on the over-the-counter (OTC) market. While microcap companies can be real businesses developing or offering products or services, the microcap sector has a long history of bad actors engaging in price manipulation and other fraud. However, even in the absence of fraud, microcap stocks can present higher risks than the stock of larger companies. This is largely because relatively little information is available about microcap companies compared with larger companies that list their securities on national exchanges.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful. 

Brokerage products are NOT FDIC insured or bank guaranteed and may lose value. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

PLACE TRADE®, PTSM, PTFSM, PlaceTrade.com™, Place TraderSM, Place Trader WorkstationSM, The Smart Place to Trade™, The Smart Place for your IRA™, The Smart Place for your 401(k)™, The Smart Place to Trade Options™  Financial Quarterback™, Jonesitus™ and The Bond Queen™ are service marks and/or trademarks of Place Trade Financial, Inc.

Please note that while Place Trade strives to offer extremely low overall trading costs, we would like to remind investors that there will be trading costs associated with investing, trading and holding a brokerage account. Brokerage commissions and exchange fees along with potential other account fees, fund expenses and service fees may apply. Expenses related to your investment account may vary depending on the type of investments that you choose to hold, type of account, level of activity, account balance, tax withholding or other possible factors. Please consider your overall trading costs prior to investing.   

The information on this website is for discussion and information purposes only. Nothing contained herein should be considered as an offer to buy or sell any security, securities product or service, nor should be considered as investment, legal or tax advice. Place Trade Financial is a registered broker dealer (Member FINRA/SIPC) however it is not registered in all states or jurisdictions. Place Trade does not solicit securities, products or services in any jurisdiction where it is not authorized to do so. Please contact Place Trade Financial at 1-800-50-PLACE (1-800-507-5223) or 1-919-719-7200 for further information. Systems response and access times may vary due to market conditions, system performance as well as other factors. All accounts are accepted at the discretion of Place Trade Financial.

Place Trade Financial, Inc. does not provide investment advice to online trading clients/accounts, online institutional accounts or any other individual or account that is not specifically set up as a full service client and on a full service commission and fee schedule. Place Trade Financial, Inc. will only provide investment advice to full service clients that are specifically set up for full service trading and advice. (Full Service clients work with experienced financial consultants and pay full service commissions and fees which are different than online trading commissions and fees.) To take advantage of both our Online Trading and Full Service flexible client benefits please call 1-919-719-7200 today! Documentation for any claims and/or statistical information will be provided upon request. Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

The risk of loss in trading stocks, bonds, mutual funds, options, and other securities can be substantial. Options are not suitable for all investors. For more information please read the "Characteristics and Risks of Standardized Options" guide prior to trading options along with the relevant risk disclosure statements on our website. 

Trading on margin is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment. (The amount you may lose may be greater than the amount that you started with or more simply put; you can lose more than the amount that you actually put into an investment when trading on margin.) Please follow these links for additional information regarding trading on margin and margin loan rates.

IMPORTANT: The projections or other information generated by any investment analysis tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.

Place Trade does not offer futures or forex trading at this time.  

Place Trade Financial, Inc. does not provide tax advice to online trading clients/accounts, online institutional clients/accounts or any other individual or account at any time. Please speak with your own personal tax advisor, CPA or tax attorney prior to making tax related decisions.

Please Note: Any symbols displayed are for illustrative purposes only and do not portray a recommendation. Apple, the Apple logo, iPod, iPod touch, and iTunes are trademarks of Apple Inc., registered in the U.S. and other countries. iPhone is a trademark of Apple Inc. App Store is a service mark of Apple Inc.

This website includes links to other third party sites. Any links to third party sites, including any site that does not specifically include PlaceTrade.com in both the URL/domain name title, frame source code and ICANN's WHOIS database, are not owned or controlled by Place Trade Financial, Inc. Place Trade cannot be responsible for the content, policies, procedures, media, source code, systems, security, certificates, instrumentalities, patents, trademarks, copyrights, original art, algorithms, configuration or any other function, form or facet of websites that it does not own or control including any other sites that may be referred or linked either to or from such sites, whether specifically stated, used or implied in any way. For information regarding other websites, please contact those websites or companies directly.

31 countries include both countries and territories.