Since the topic is focused on obtaining passive income as a result of investing, today we will consider possible investment risks. Everyone understands that giving someone money, we risk not getting anything back. I wonder why? The “pitfalls” that should be avoided in your work will be described below.
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So, the first and most important rule of investing:
The higher the yield, the higher the risk of investing
If you are going to “invest” in an extremely profitable enterprise – for example, in a HYIP, think! Think hard, is it worth it? If you decide that it is worth it, then contribute at least a small part of the entire investment capital.
The same principles should be followed when investing PAMM accounts of managers with an aggressive trading strategy. In general, when forming a portfolio, in the distribution of funds between traders, you should adhere to the ratio of 30% to 70% — a smaller part should be transferred to the management of “aggressors” and vice versa.
This was the main, clear risk of investing. Now let’s talk about implicit risks.
Operational risk
The so-called operational risks of investing are present when choosing a broker. From the very beginning, build your relationships only with reliable and well-known financial companies. Whatever amount of your own funds you do not intend to transfer to the management, first read the reviews about the future business partner and the time of its existence on the market.
Before you deposit money to a certain PAMM account, you need to carefully study the manager’s work history, tactics of his work, personal information and the possibility of operational communication with him.
So, to eliminate operational risk will allow a competent choice of the manager.
Risk of lost profits
This occurs if the investor tries to withdraw funds from the account at the slightest panic or “drawdown”. Anyone who is in any way connected with the Forex market, it is necessary to understand that the market itself can be considered a “living” substance, and changes in the direction of the trend on it occur constantly. Accordingly, short-term drawdowns on the account are quite acceptable.
Moreover, different managers use different trading tactics and, with a large trading period, a weekly decline in the level of profitability is quite acceptable and will be compensated by the end of the reporting period. The immediate withdrawal of funds will result in penalties and future loss of earnings.
This risk can be offset by investing in different instruments with different trading periods.
Conclusions
From all that has been listed, it is quite natural to conclude that the best protection against investment risks will be the diversification of investments between completely different, in their properties, investment objects.
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