Investor protection is the effort and activities to enforce, safeguard, observe the claims and rights of a person in his investor role. This includes legal action and advice. Investor protection is also a term in economics that refers to any form of insurance or guarantee that the investment made by an investor will not be lost through such things as fraud. There is an assumed necessity for being protected based on experiences that financial investors are often inferior structurally to providers of financial products and services due to lack of experience, information or professional knowledge. Countries that have strong protection for investors tend to experience more rapid growth compared to those with less protection for each investor. Included in investor protection is accurate reporting of finances by each public company so that every investor can make a decision when fully informed of the stakes. Investor protection also includes market fairness that means all market participants are able to access identical information.
Investors are people allocating capital with expectations of financial future return. Investment types include commodity, real estate, debt securities, equity and derivatives such as options of put and call. This definition does not differentiate between those in secondary and primary markets. Someone who buys stocks and someone who uses capital to create a business are both investors and both types are protected by investor protection policies provided by the individual itself or the government of the country he or she belongs to.
Through individuals, investor protection is one of the strategies that are used to lessen loss. When buying only shares of a business that they understand or those that remain stable through the volatility of the market, individual investors are able to protect themselves. Investment strategy does matter when it comes to protecting an individual as he or she invests. The strategy includes appropriate stock price or assets at the time the investor makes an investment. It is hard to fix what the appropriate prices are and when these are right since no one makes a sale or purchase in the most favorable situation. However, when an asset or share is undervalued compared to its potential, a determination may be made. In other words, an individual can protect himself by making the best determination when it is best to buy stock or make an investment, as well as selecting what company to invest in. With some exceptions, investments made in reliable companies that have been around for years poses less of a risk than investing in brand new companies.
Through the Government
Through the government, investor protection involves government enforcements and regulations to ensure that there is fairness in the market, and there is an elimination of fraudulent activities. One example is the United States Securities and Exchange Commission, which is a government agency providing investor protection for investors in America. Most countries have regulating bodies to help in protecting each and every investor from risk such as fraud in their investments. This not only encourages good business practices but also protects the money invested by the person making the investment.