Investing in stocks can help you grow your wealth over the long term, but it's important to understand the risks before you start.
General risks of investing in stocks
Market volatility: Stock prices constantly go up and down. Factors like economic news, company earnings reports, or global events can cause sudden changes in the value of your investments.
Loss of capital: There's a possibility you could lose some or all of the money you invest. If you sell your stocks when their price has dropped, your losses become permanent.
Liquidity risk: Some stocks can be difficult to sell quickly without affecting their price, especially those from small companies or with low trading volume.
Company risk: If the company you invest in has financial problems, poor management, or loses competitiveness, the value of its stocks can drop significantly.
Sector risk: Entire industries can be affected by regulatory changes, technological shifts, or consumer preference changes, impacting all companies in the sector.
Risks when trading through a foreign broker
Bitso uses Alpaca Securities LLC, a U.S. broker regulated by FINRA and the SEC, to process stock buy and sell orders. This involves additional risks you should consider:
Currency risk: Fluctuations in the exchange rate between your local currency and the U.S. dollar can affect the value of your investment. Even if your stocks go up in price, you could lose money if the dollar depreciates against your currency when you sell.
Foreign regulation: Your stock investments are subject to U.S. regulation, not your country's. While the United States has a robust regulatory framework, the protections and processes for resolving disputes are different from local ones.
Legal jurisdiction: In case of conflict or problems with your investments, you'd be subject to U.S. laws and courts, which can make resolving any dispute more difficult and expensive.
Tax implications: You must comply with your country's tax obligations regarding gains from selling stocks. It's your responsibility to report these gains to the relevant tax authorities.
Intermediary risk: Although Bitso provides access, operations are processed through Alpaca. If Alpaca faced operational or regulatory problems, it could temporarily affect your ability to trade or access your investments.
Trading hours: Stocks are traded according to U.S. market hours, which may not align with your usual time zone.
Recommendations before investing
- Invest only money you don't need in the short term.
- Diversify your investments to reduce risks.
- Understand how the relationship between Bitso and the broker that processes your trades works.
- Familiarize yourself with the terms and conditions about asset custody and dispute resolution.
- Consult with a tax advisor about your tax obligations.
- Consider the impact of exchange rates on your investment decisions.
Remember that all investments carry risks and there's no guarantee of profits. The greater the potential gain, the greater the risk usually involved.