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every time we buy any product. Everyone who trades takes a market risk because stocks go up and down. That is the nature of the market and that is the nature of the opportunity. Strategies exist to handle market risk. Perhaps, most importantly, you need a personality that can tolerate market risk in order to trade successfully. The wherewithal to deal with risk varies from person to person. If you are averse to taking a market risk, then put all your money in certificates of deposit in Federal Deposit Insurance Corporationinsured banks or in short-term U.S. Treasury bills, assuming that you trust our government for 91 days at a time. |
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Let me emphasize that market risk represents the opportunity to make profits. Market risk is universally and indivisibly related to any investment. All actions in life involve some risk; you could accidentally choke on a Big Mac or one thin french fried potato. |
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Execution risk is the problem of turning an idea into a consumated trade. Just because a stock appears to be quoted at a certain price does not always mean you will be able to buy it at that price. Historically, execution risk had reduced the odds of success. The Nasdaq market was structured to maximize the opportunity for brokers and dealers. Fees, commissions, spreads, and trading "costs" were the price each customer paid to use the market. Those costs were built into the system. Each customer took on a little sliver of the added costs so that no single customer felt the pinch enough to complain. Execution risk can diminish profit like friction drains motion. Eventually, even the slight friction of the tires on the road will stop any vehicle. |
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There is probably no doubt at all in customers' minds that execution is faulty. Even worse, one of the greatest fears of investors and traders is being shut out of the market, where they would be hanging in limbo, helpless to take any action to alter their situation. This fear has a real and fairly recent basis. During the crash of 1987 investors and traders could |
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