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Stock markets are never stagnant. They are always moving. Sometimes this movement may be steeper than normal. In some scenarios, the stock market is said to be recessive, that is, there may be a sharp fall in stock prices. Stock prices more often than not, never climb up or fall down linearly. Here, we will find out how not only to protect your business in a recessive stock market, but also to profit from the recession itself. You should try to get some knowledge on the effect of the recession in the lives of the common man.
What is recession?
Before we discuss on the steps to protect ourselves from stock market recession, it is important to understand who and when does this recession really affect. Remember the tag line,
Recession largely affects the short-term or “dynamic” traders not only unfavorably but also positively!
For short-term traders, recession can be either a boon or a bane, depending on how vigilant and quick-acting they are. A successful active trader always looks forward to capitalize on this recession. A sudden rise in stock prices will mean that the active trader will immediately be able to sell his stocks at a higher price and make a profit. In the same way a quick fall also means that he incurs a quick loss. At the same time, a quick fall also provides him an opportunity to buy shares at a much lower price than before. So basically, it all depends on the active trader to use the recession to his advantage.
Long term Investors
Long-term traders can shout approval at the fact that though recession in the stock market affects them on a day-to-day basis, they always have time to recover. They can do this simply by waiting for the market to climb back up and stabilize.
The worst –affected victims of stock market recession are the small business owners. But they are also the odds-on to recover from it if they are careful.
- By no means over-stock commodities: It’s always possible that commodity prices fall as soon as you have bought a consignment. Hence, never over-stock any commodity. If a price-fall is imminent, come up with offers and clear up your existing stock.
- Use the Price-protection option: Many well-established manufacturers offer price protection on their commodities. This serves as a guarantee for the small business owner that even if he has to sell his goods at a price lower than his cost price, he will always be reimbursed by the manufacturer.
- Collect all out-standings receivable. Hire a collection- agency if you cannot do the collections yourself. Even big corporations do this trick and it pays off!
- Reshuffle your workforce: When business is low, you may not be able to utilize your workforce to their full potential. Your business will soon look overstaffed. To avoid getting into such a situation, cross train your staff. Cross-training will not only make it easier for you to manage your work in case of non-attendance or retrenchment, but will also make your work force better skilled and prepare them to be eligible for promotions. But lay people off only if absolutely necessary – who knows you may need them again pretty soon!
- Cut your production: It would be foolish to invest more money in acquiring more raw materials for production when you have not cleared up your old stock of finished goods yet.
- Sort out your inventory: Chuck out obsolete commodities in your inventory will induce imminently. You should realize that though time was such goods might have cost you a fortune, they are at present worthless. You are already running a beating if you are keeping them. You are doing much better if you are selling them for whatever price you are able to get for them. By doing so, you are really making a profit since any price is bigger than rubbish!
You now know, though in brief, the effect of the recession in the lives of the common man. You should be very careful when you wish to invest in the market so that you are able to maximize your profits. Make sure you try to know the functions of NASDAQ.
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