Trading used to be the realm of established financial brokers. Today the internet has made it possible for anyone to deal with their own investment portfolios. Several online trading services have been established in recent times dealing in Forex, mutual funds, ETFs stocks, options, bonds and CDs.
While anyone can trade online today, it’s a venture that shouldn’t be taken lightly. Online markets move pretty quickly and they can cause great volatility in your investment.
A common mistake that people make is investing on the advice of others. A good example comes in the form of long oil trade in 2008. Investors were of the opinion that the global supply was decreasing, but the reality was that demand was shrinking while supply was gaining momentum. The oil price rise was due to mere speculation so a lot of investors had to suffer.
Tips to reduce online trading risks
1. Be patient
Trading on the internet allows for quick research and opportunities, but that can get overwhelming. Most individuals keep in mind the profitability aspect of trading and forget about the risk – which is natural. Trading pips can make you greedy and tempted to invest more, but they can fall at any time. It is therefore important to analyze the risk of your investment and make crucial decisions.
It is also important to note that online trading becomes riskier with a bad internet connection as markets move pretty quick. You can be in a profitable situation one minute and suffer a loss the next. So it is important to keep a stable, fast connection for online trading.
Fast internet connections are now more affordable and it is also possible to save money on them. For example, existing and new Verizon customers can utilize the best Verizon Fios promotion code on the market. Such deals result in a lot of savings, as you not only get a fast internet connection at a good price, but also receive items like wireless routers and gift cards without any extra charges. Furthermore, most companies offer such promotions in bundles, so you may also end up getting free cable TV services.
2. Set limits/caps
Placing a limit order or cap is an instruction to buy and sell at a specific price. In case of buying, the order will only take place at a lower or limit price, while it can only be sold at a higher or limit price. Market order on the other hand doesn’t give control over the price at which buying and selling take place.
For instance, if you want to buy a stock that’s priced at $15 initially, you can set a limit of $20. This prevents you from a loss if the stock price suddenly shoots up.
3. Educate yourself on alternatives
There have been instances when traders were unable to access their online accounts. What people are generally unaware of is that alternatives are lifesavers in such emergency situations.
Some of the options include phone calls, faxing the instructions or making the trade over the phone. While they may have high associated costs, they can be great resources in preventing a bigger financial loss when your account can’t be assessed.
How do you minimize online trading risks? Feel free to leave comments below.