Drawbacks Of Stock Market

By Author: sudarshan singh
Total Articles: 327
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A stock is a small share that represents a partial ownership of a company. Stocks are issued by companies in order to raise capitals and are bought by investors in order to acquire a portion of the company. Even a small share of the company will give the investors the right to have a say in how the company is run. Although they gain a portion of the company’s profits, investors do not carry an obligation to the company in cases of defaults or lawsuits.Share prices rise and fall depending, largely, on market forces at the stock exchange. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.Many individual stock options do not have much volume at all.The fact that eacg optionable stock will have options trading at different strike prices and expirations means that the particular option you are teading will be very low volume unless ...
... it is one of the most popular stocks or stock indexes.These commissions may be even higher for spreads where you have to pay commissions for both sides of the spread.The stock market subjects investors to high levels of volatility. This means sometimes the market goes up and sometimes the market goes down. Investors do not mind volatility to the upside but downward volatility can damage wealth.There are different Drawbacks :

- Money must often be left untouched long-term
- May be minimum deposit requirements
- May be high charges which reduce earnings from investment returns
- No guarantee of returns
- Risk of losing your money
- Dividend-paying companies see less price appreciation than growth stocks.
- Share prices can drop whether the stock pays dividends or not.
- Companies can slash or eliminate their dividend payments at any time for any reason.

The stock markets can be volatile with frequent price swings of several percentage points in a single trading session. Investors run the risk of locking in losses for thinly traded stocks especially in fast-moving markets. Diversification and hedging are two ways to protect stock portfolios from downside risks. Diversification involves investing in several companies and industries, either directly or through mutual funds, so that losses in one stock offset gains in another. The disadvantages include loss of control to external shareholders and additional costs related to regulatory filings and shareholder communications.The stock market tends towards substantial growth in the long term, this growth is incredibly volatile and inconsistent in the short term. Many investors lose money by selling their stocks when the market is down or have the misfortune to need access to their investments right after a large drop in the market.These investments carried a high risk of failure in exchange for the possibility of high profits, similar to the stock market.

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