Any investment transaction, whether it is a passive or an active exchange operation, carries elements of risk. The main proportion of investment theory is that potential return is inversely proportional to the level of risk.
Explanation:
The risk increases due to the lack of predictable fixed returns, but potential profits increase proportionally. The degree of the result depends on the investor actions; the active participation of the owner of shares in deciding when to buy and sell also increases. Let’s check risk-free investment types. The foreign exchange and derivatives market are instruments with variable returns, and everything that can be applied to about stocks is equal to them. Besides, the risk and potential profitability are higher due to a higher ratio of own and borrowed funds, that is, more substantial level of leverage.
The next step is the FOREX market, but in this case, the risk increases due to the leveraged growth. Finally, binary options where the principle of all or nothing takes place. A rate is made on a specific event (growth or fall of an asset), and it can either win or completely burn out. The most reliable investments that carry the least risks are fixed-income group instruments – bank deposits, bonds, structural notes with full protection. In general, everything that gives a fixed, predetermined yield on a specified date. Anyway, this does not mean that this group of tools is risk-free.
Investments with maximum reliability are subject to risks, but the risk level is lower for them. Accordingly, low returns take place at the level of inflation and the base interest rate of the country of the instrument origin. It is essential to clearly understand what risk we expose our capital to when opening a position, manage the value of risk and accept it in advance in case of an adverse scenario. If it is impossible to take such a risk level, then refuse to open a position.