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Investing in stocks is an exciting，action-packed，fast-moving idea that for decades has excited many people—even those with little money to invest—with the possibility of building wealth.

It is possible to make money in stocks，but it is also possible to lose.Every investor wants to earn a profit on every investment decision made.However，experienced investors also understand that it's a percentage game.You are going to have some losses along the way.No one is able to create profits in every instance.The key to success in the market is experiencing more profits than losses.

There are a number of different risks every investor faces.It is not simply a matter of profits versus losses，but a more complex series of conflicts between supply and demand，timing，influences in and out of the market，and the economic climate.

Most people understand the most obvious form of risk，known as market risk，or exposure to declining prices.This is only the first of many risks every investor faces and needs to manage.

Managing risk refers to how you structure your investments to maximize profits while minimizing the chances of losses.This requires careful selection of stocks based on sensible criteria，avoiding putting too much capital into any one stock，and continually monitoring the market to spot changing trends.It also requires that when considering any one company as a possible investment，you know what trends to examine and how to determine market risk based on the indicators you pick and track.

Market risk is the ultimate expression of supply and demand.After you purchase shares，many changes can occur.If the demand for a company's shares is quite strong，prices will continue to rise；if demand is weak，prices might fall.When the supply and demand for shares are about equal，the price tends to stay within a narrow range.This condition，known as consolidation，is best described as a time of indecision.No one can tell whether buyers or sellers are in command and，as a result，it is impossible to predict whether the next price direction will be upward or downward.

Leverage risk is the risk that arises when investors borrow money to buy stocks.

Most people will agree that it would be foolish to mortgage a home to the hilt to free up money to enter the stock market.The same people would not think it wise to seek a bank loan or line of credit to expand their portfolio.However，many of the same people will use a brokerage firm's margin without hesitation.This is a form of borrowing.The margin account can be used to double up your positions.For example，if you have＄20，000 to invest，you can take up positions as high as＄40，000 under the rule that you have to maintain at least one-half of value in cash and securities.The rest can be borrowed in your margin account.

A margin account is a great convenience，but using it increases your risk.If you expand a＄20，000 to＄40，000 and it earns 25 percent，you make a＄10，000 profit.On only＄20，000 in the same investment，you would earn only half of that，or＄5，000.So the case for using leverage with a margin account is a strong one—until you consider what happens in cases of loss.

For example，if you start out with＄20，000 in cash and borrow another＄20，000 on margin，what happens if the＄40，000 portfolio loses 25 percent？It falls to＄30，000.Two things happen right away.First，your broker will issue a margin call，meaning you are required to meet minimum maintenance requirements，or keep 50 percent in the form of cash and securities.

In the example，the portfolio's overall value has fallen to＄30，000 but＄20，000 of that was borrowed in the margin account.So your capital value has fallen to only＄10，000.The broker will issue a＄10，000 margin call，meaning you have to bring your＄10，000 of capital up to match the amount on margin，＄20，000.If you cannot come up with the amount demanded by the margin call，your broker will sell off＄10，000 of your holdings to pay down the margin.This results in a portfolio worth＄20，000，half cash and half on margin.The net result:You have lost money，and your＄20，000 portfolio now consists of＄10，000 cash and＄10，000 you owe to the broker.

The convenience of a margin account is accompanied by the very high risk of margin investing.You might double your capital or lose it，all very quickly.

Knowledge and experience risk

Your knowledge and experience risk includes your investing background as well as the collective research you have performed for yourself in the past—performing online searches and studying books，magazine articles，or annual reports.

Knowledge should be acquired from sources that make sense to you.Today，especially with so many free online organizations providing free advice，it just makes sense to verify everything you discover.Sites that are selling something may offer claims that do not hold up.For example，if a web site wants you to subscribe to a service，make sure you know what you are going to get.If you are promised the“secrets of making millions”in the market or“things Wall Street doesn't want you to know”，it probably involves a get-rich-quick scheme that is not going to work.

Market knowledge is best acquired when it is based on the recognition of what is truly needed to succeed in any endeavor.Success is the result of hard work，study，and analysis，but no one should rely on the claims by others to having knowledge as an easy and fast way to get rich.No one is going to sell knowledge to you.Most of us know all of this already，but it is also easy to fall victim to amazing promises for a one-time payment.

Experience，it has been said，often comes from making mistakes or losing money.If that is true，then losing a lot of money is“better”experience.This does not need to be the case.In fact，you can gain experience by paper trading stocks before actually putting cash on the line.Paper trading is a simulation involving real-time market price movement and the selection of stocks using a fictitious fund of cash.

Paper trading is an excellent way of learning the mechanics of trading stocks，finding out how margin borrowing works，and managing the payment and delivery of shares once an order has been entered.However，there is no substitute for the real thing.You can learn the theory of riding a bicycle by studying user manuals and watching films，but you do not actually learn until you get on the bicycle for real.The same is true for gaining investing experience.

A“sector”is a segment of the market that is focused on one industry.Sectors include companies that share distinct product or service attributes or serve a particular market.The concept of sector risk relates to the cyclical and industrial risks each sector is vulnerable to or likely to suffer from in the event of economic conditions.

Sector risk comes from the natural supply and demand cycle，economic conditions and their changes，political trends and actions，and perceptions among investors about specific sectors and industries.

Political and economic risk

The risks associated with each sector and its industries are derived from many outside sources.Among these is political and economic risk，which is among the most important outside factors in assessing both the viability and value of a company，and identifying the timing of purchasing shares.

A closely related risk involves potential disruption of markets.So disruption risk may be a secondary fallout of either political or economic risk.

Examples of possible disruptions may include terrorist attacks that close down exchanges；power outages；catastrophic threats like pandemics，hurricanes，or flooding；or localized disruptions from labor strikes，regulatory enforcement actions，or even excessive price changes in the market.The exchanges employ stopgap measures on individual securities or even on the entire market if and when trading volatility exceeds specified levels.

Inflation risk and tax risk

Two forces—inflation and taxes—might not seem related but in fact，they are.And together they directly influence your investment profits.The first，inflation risk，is your exposure to higher prices.As inflation rises（meaning everything costs more money）your capital loses its purchasing power.This is a huge and eroding influence on your money.For example，to match the spending power of＄100 in 1950，you would have needed＄891 in 2009 just to match the purchasing power of that original＄100.

The effects of inflation are serious because as it rises，you need to earn a higher level of profits just to break even and maintain purchasing power.This translates to the demand for taking higher risks as a response to inflation.

If you are so adverse to market risk that you keep your money in a safe but low-yielding account，then you lose purchasing power.For example，in 2010 inflation was averaging about 2 percent.If you put your money into a certificate of deposit yielding only 0.75 percent over three months，you lose 1.25 percent of your money in reduction of purchasing power.You need to earn at least 2 percent just to match inflation—and that is before you consider the effect of taxes on your profits.

Tax risk is the threat that with part of your earnings going to federal and state income taxes，the remainder，or after-tax return，will not match inflation.The tax burden is not only federal，but has to include the state tax liability as well.When both federal and state taxes are added together，the taxable percentage can rise as high as 50 percent or more.

Fundamental risk is the danger that the financial statements and reports issued by a corporation might be inaccurate and even deceptive.

Is this type of risk a serious one？In recent years，many investors have lost large amounts of capital due to intentional deception.The well-known case of Enron（among many other companies）involved not only intentional deception，but the willing participation of what should have been an independent auditing firm.

Companies can and at times do distort their profit picture.Some distortions are legal under the accounting rules，so you need to track the trends over many years to get a grasp on the long-term growth curve.

Lost opportunity risk

The final type of risk to be aware of is the risk that all of your capital will be tied up in positions and you will miss new opportunities as a result.The lost opportunity risk is a matter that virtually all investors face and have to make decisions to deal with or overcome.

This risk comes about in several ways.In its most basic form，it exists whenever available capital is limited.Even if you employ your broker's margin account，if you cannot free up capital to invest in more positions than you hold right now，it is possible that many opportunities will come and go.