Module 5 of 6 in Stock market foundations
Ups, downs and risk
Bull and bear markets, corrections and crashes, circuit breakers and price bands, the maths of losses, and the main risks of owning shares.
3 lessons in this module. Progress is saved in your browser as you go.
Markets do not rise in a straight line. This module describes the phases markets go through and the arithmetic of falls and recoveries, which surprises most people. It finishes with the kinds of risk every shareholder carries and the habits that keep those risks within limits you can live with.
By the end of this module you should be able to
- Describe bull markets, bear markets, corrections and crashes, and measure a fall from a peak.
- Calculate the gain needed to recover from a given percentage loss.
- Explain daily price bands and market-wide circuit breakers, and what they do and do not protect against.
- Identify the main risks of owning shares, including company, market, liquidity and leverage risk.
- Explain simple ways to reduce risk, such as diversification, a long time horizon and avoiding borrowed money.
Lessons in order
Module test
10 questions, chosen at random from a bank of 39 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- Nifty 50 and Sensex: Market phases are usually described using index levels, so you need to read index moves as percentages.
- Dividends, capital gains and losses: Falls and recoveries are about gains and losses on your holdings.
- How stock exchanges work: Halts and price limits change how the exchange matches orders.
- Bid, ask, spread and liquidity: Liquidity risk builds directly on what liquidity is and how it shows in the order book.