Some people will tell you that trading is all about taking risks. And they are quite true in their first notion. However, your trading career should not revolve around your first notion of this industry. In fact, trading is more about minimizing risks than it is about taking them. That’s what experienced traders do so well. They minimize their risks when trading whereas new traders are all focused on making profits. Since trading risks are inevitable when you are in this world, the best way to minimize risks is by learning the many ways of doing that. Keep reading to find out the most valuable tips for minimizing your risks while trading.
Minimizing Risks while Trading – The Golden Tips
Inquire about Regulation
The first risk that comes with trading involves you signing up with an online broker. If you are new to trading, you have to know that you will have to sign up with an online broker if you want to trade assets in financial markets. Different online brokers will give you access to different types of assets, offer you different spreads, perks, and promotions. However, you should look at the bells and whistles later. The first thing you have to focus on is the regulation of the online broker. If the broker is regulated, you can trade with confidence. If the broker is not regulated, you should choose to trade with another broker.
An unregulated broker is a threat itself. It can run with your money and you will never know. It will charge you a lot of commissions and you can never dispute them. In short, it will make your trading career miserable for you.
Keep Your Emotions at Bay
Your emotions are your enemy while you are trading. In fact, your emotions can be your enemy in just about anything you do in life. You have to operate with patience whether you are running a business or investing in a financial asset. When you trade with emotions, you end up making decisions that harm you even more. You might win a trade and want to trade more just because you are happy. However, you might lose your earned profit just because of unnecessary trade. At the same time, you might continue to trade out of anger when you lose some money in losses.
However, when you are emotional, especially angry, you can’t make rational decisions. Make sure that you trade with your mind and intelligence at all times. Get off the trading station as soon as you notice that you are trading out of emotion.
Choose the Right Broker
The risk of trading also depends on the type of broker you have signed up with. Some brokers are legitimate but they do not know what customer experience really means. As a result, they design policies that are not friendly for traders at all. You have to pay a lot of commissions on your trades when you sign up with these brokers. You will pay a commission when you enter a trade despite the fact that the broker has already made money from you through spreads.
Similarly, the broker will charge you commissions on keeping a particular position in a trade for more than a day. Furthermore, you will have to pay commissions when you withdraw money from your account. All of these commissions bite into your profits and you end up losing more money than you are making.
Use Leverage Only When Needed
One of the biggest mistakes you can make as a new trader is when you rely on leverage a lot. Leverage is the facility you get from online brokers when you trade. Leverages is offered by just about any online broker to any trader, experienced or non-experienced. When you have leverage, you are offered a contribution by your broker to help you with your trades. This leverage can be 1:10, 1:100, and even be as huge as 1:1000. You can see that your broker can help you a lot with your trades by increasing their volume. As a result, you can feel that your profit is doubling and tripling as well.
However, what you fail to notice is the fact that you can lose in the trade as well. If the prices do not move in the direction you have predicted, you are looking at amplified losses.
This is something that you should learn as soon as you learn trading. If you do not know, the most experienced traders use this particular technique to minimize their losses. In this type of strategy, you invest your money in two different assets. The assets are apparel correlated, so when one asset’s price goes up, the other one’s comes down and vice versa. This correlation is extremely helpful for you if you invest your money in both. If you lose your money in one asset, you are definitely going to make up for that loss in the other trade.
However, you have to keep in mind that this technique requires some practice and skill. At the same time, you will not be allowed to use the hedging technique by many online brokers. So make sure that you pick a broker that allows hedging irrespective of your trading experience.
Use Stop Loss
One of the biggest mistakes that many new traders make is that they keep focusing on making a lot of profits. On the other hand, most experienced traders want to focus more on minimizing their losses. And for that reason, you have a lot of strategies that help traders minimize their losses in trades. When you enter a trade, you can put a cap on how much in loss you can go if things do not go your way. So, when the trade does not go in your favor, you have a stop-loss feature in place that gets you out of the trade after a certain loss. In other words, you cannot incur more losses than you have specified in your stop-loss strategy.
Once again, you have to make sure that you sign up with the right online broker that allows you to use this strategy. At the same time, you should pick online brokers that make it easy for you to use this strategy on their trading platforms.
If you are a new trader, make it a rule that you will always focus on both sides of the coin i.e. the profit and loss. You can’t keep on focusing on profits and use strategies for that. You have to be just as serious about not losing money. There are many other techniques that you can use to minimize your losses to the minimum. Use them and make sure that you continue with your journey of becoming a professional broker, even if through small profits only.