Investing in the stock market can be a very smart move to make, but you have to go into it with the realization that there is risk involved that will lead to stock market losses in all cases. When you purchase a share of stock, you’re buying an equity share with returns that are made possible by increases in the value of the asset in question. There are a number of reasons why stock prices increases and some of those reasons can be unexpected. If a company’s earnings exceed their figures or they’re getting ready to acquire another business, there could be a power surge on the stock price. Sure, investing in stocks can make you a lot of money if you’re smart about it, but you’re bound to lose something and if you don’t have a good idea about what you’re doing, you could lose it all. Being uneducated about trading practices, risks and strategies could really screw you up in the long run.
One big question that first time investors might wonder about is if they have the option to buy insurance on stocks to ease the stock market losses burn. Though it can be done, it’s not a very easy or inexpensive process for the novice stock market trader: so it’s more like an impossibility at this time. That doesn’t mean that there aren’t ways to avoid losing big in the stock market, though. The diversification of your portfolio would be the first step and then there are several follow-up methods that you can use.
How to Diversify Those Stocks
You go about diversifying your portfolio by spreading your money across a variety of assets. This will help reduce your non-systemic risk and your gains and losses will balance out because of returns on other investments in your portfolio. You want to have a good mix of both constant and volatile returns so that the ball is always rolling on one thing or another. Safe stocks are the kind of stocks that don’t see wild fluctuation in price or dividends. These are of course a good thing to have in your portfolio, but you’ll need more to make a bigger impact. Making sure to invest across an entire index–like the Dow Jones or S&P 500–will insure individual stock investments.
- Bonds, commodities, currencies and funds are very valuable assets to have in your portfolio.
- Those U.S. Treasury Bonds are lauded by conservative traders as the safest asset to invest in. Have a few of these type of assets will definitely help you see less losses over time.
What Is A Stock Option?
Options can be a very helpful tool when you’re trying to hedge stock market losses. An option is a contract between two parties that gives the buyer the right to buy or sell stock at a certain price within a predetermined date. A call option allows the buyer to purchase stock at a special price–usually called the strike price–fully expecting that the stock will appreciate beyond the strike price. A put option allows an investor to sell stock off at a strike price while expecting that the price will drop.
Buying stock options for individual stocks is a good way to protect yourself from stock market losses that usually come into play with those most volatile investments.
Most stock options are a safe and easy way to guard yourself against hefty losses, but there are still other options out there which can give you leverage over the market. With an index option, value is drawn from an underlying index and the contract owner has the right to buy or sell an entire bundle of assets. An index option provides insurance for the investor against a bear market. Bear markets are times of decrease on an investor’s portfolio and the index option is there to generate favorable returns. There are also ETF options that secure stock investments and replicate whole indexes and definitive sectors. Index options are provided with cash down, but ETFs can be settled from the prospective profit that lie in wait. VIX options allow market traders to speculate on the intensity of the market’s current without having to factor in the stock market losses of the underlying asset. VIX options are also provided for cash, so they can be a very simple way to diversify the portfolio.
When it comes to investing in trading, the stock market is always going to be an unpredictable place. You’ll start to realize your stock market losses and gains on a daily basis. Doing whatever you can to insure your investments should be a top priority. I can’t say this enough: diversifying your stock market portfolio will be of dire importance and any investor will come to know this as law over time. Get in the game and start cutting those stock market losses before they even come into play!