Risks Of Trading Online
In A Nutshell
Considering this it is worth taking a brief overview of these two elements.
Margin Margin is like a loan, you are borrowing from the trading house who will require you to place an initial deposit either as cash or securities.
This means you can use small amounts of your own money to lever a much larger trade which can then yield bigger profits… or losses!
You can lose more money than you originally invested and brokers may be able to sell your securities without informing you.
If margin is used sensibly by a professional it is an effective tool, used optimistically by an ambitious amateur is extreme folly.
DO NOT go on margin until you have become skilled.
It can be a huge temptation for new people and Talker types in particular.
Stop Losses Stop losses are lifesavers when trading online.
Do use stop losses on every trade, this then restricts how much you can lose.
Stops or stop orders are limits that a trader sets to automate entering and exiting a trade. They are orders to sell or buy if the price reaches a specific level. If you have a long position then you set the stop below the current price and vice versa for a short position.
Discipline and a lack of emotional response are needed to ensure people do not fall for the standard mistake of lowering stop losses in the hope the market recovers.
There can also be a drag or slippage with stop losses, which means you can lose more than you think. If the people selling are far greater than the people buying then the price at which the order is fulfilled may be greater than you set.
This is not perfect but is still the best method for exercising a safe money management strategy. If your trade is moving in a positive direction then you can adjust your stops to lock in your profit.
Forgetful or haphazard temperaments such as the Talker are in very real danger of forgetting to place stop losses on all trades.
Along with the glossy adverts encouraging people to try the financial markets should be the stories of those that tried and failed badly, and the very real repercussions of having to re-mortgage their homes to pay for a moment’s mistake.
Trading online the financial markets for the majority of home business entrepreneurs is likely to be a disaster, please exercise the utmost caution with this business category.
For more information on margin, stop losses, and the other standard trading online methods and principles read:
• Reminiscences of a Stock Operator by Edwin Lefèvre
For a general overview of trading online click here
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