If you’re a financial trader and want to start your own financial market trading business, there are quite a few pitfalls you need to jump over in order to be successful at what you are doing. The top financial analysts at Jones Mutual confirm that more than 50% of online traders lose almost all their invested capital due to pitfalls they could have avoided. With that said, when running a financial market trading business, there is no room for unnecessary errors. Here are some of the major pitfalls you need to look out for when trading online.
Don’t let an unprofitable trade turn more unprofitable
It is only human to want to hold onto something in the hopes that it might turn out well in the end. However, in the case of online trading, it might mean the difference between losing a small amount of capital and losing all your capital. Many traders notice their trade running downhill but instead of acting quickly and exiting the trade, they hold onto the trade and hope the market turns up again. Should this not be the case, the trader will be out of pocket with more than just the few dollars he or she had wanted to lose if the trade went sour.
Don’t think you don’t need a stop loss
Some traders, especially those who have been in the financial market trading business for a while, tend to fall victim to this pitfall. Failure to set a stop loss when placing an order can potentially result in catastrophe. Stop losses are there for a reason – to limit your capital losses if the trade turns unprofitable. If you don’t set a stop loss, you might end up losing all your capital. To put it bluntly, it’s a no-brainer – a stop loss is a must.
Don’t stray from your trading strategy
If you have a financial market trading business, having a solid trading strategy is mandatory. You need to know exactly when you are going to enter a trade, when you are going to exit a trade, what your stop loss and take profit levels will be and how long you are going to stay in the trade. You should never stray from your trading strategy and although you can amend it from time to time along with market recommendations, straying from it during an active trade can result in huge losses.
Don’t cuddle up with leverage
Many brokerage accounts give you the ability to trade with a margin of leverage. This means that you can “loan” an amount of money from your broker in order to make bigger trades. Although these trades can offer you much bigger profits, if the trade goes south, you will suffer the same percentage of losses. You still have to repay your broker after your losses are made. From this, it is evident that leverage comes along with a mountainous amount of risk – a pitfall you should rather look out for than fall into.
Never copy other traders unless you have reason to
If you start a financial market trading business, copying another trader and his or her trading methods is not the best option. Unless you have extensive knowledge of the trader, you are about to copy and you have studied the way they have traded to a great extent, copying them shouldn’t be your first choice. Rather than looking at what others are doing, form your own trading strategy and means of generating income from your trades. Some online trading platforms offer you the ability to see the performance ratio of other traders as well as the percentage of success they have with their trades. This can often lead you to be misinformed about how they come to their success as you don’t have access to their own personal trading strategy.
When trading Forex, CFD’s or any other form of financial trading, it is important to look at both the benefits and disadvantages of trading. That way, you will know what to look out for and how to recover from pitfalls, should you fall victim something likewise.