Which of the instruments traded on the stock exchange is less risky? There is no definite answer to this question. Because the risk in the stock market changes according to the investor's preferences, expectations, level of knowledge and market conditions. However, in general, the instruments traded on the stock exchange can be listed as follows:
- Stocks: They are the most popular instruments of the stock market. It is taken to be a partner in the capitals of the companies. Stocks are suitable for both short-term and long-term investing. However, stock prices can be very volatile and hurt the investor. This is why stocks are considered high-risk instruments.
- Bonds: They are debt instruments of public or private institutions. Principal and interest payments are made when due. Bonds are generally suitable for long-term investments. Prices of bonds vary depending on interest rates. When interest rates fall, bond prices rise, and when interest rates rise, bond prices fall. For this reason, bonds are considered medium-risk instruments.
- Exchange-traded funds (ETF): Baskets containing more than one stock or other assets. By purchasing an ETF, you are investing in the assets in the basket. ETFs are suitable for both short-term and long-term investing. The prices of ETFs vary depending on the performance of the assets in the basket. For this reason, ETFs are considered low-risk instruments.
As a result, ETFs are the least risky among exchange-traded instruments. However, this does not mean that it will always make a profit. The investor needs to determine a suitable strategy and follow the market.