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Top Risks Associated with Trading and How to Avoid Them

Top Risks Associated with Trading and How to Avoid Them

Top Risks Associated with Trading and How to Avoid Them – Introduction

Trading is a risky business. In the past, many traders have lost a good portion of their money. In fact, 95% of all people who try their hand in trading lose money. Therefore, trading is not for the faint-hearted. It is a risky business that has led many people to their death. In this article, I highlight a few risks associated with trading and how to avoid them.

  • Psychological risks

Trading is a zero-sum game. This means that for you to make money, someone or an institution must lose it. No one likes losing. Therefore, there are risks that go hand in hand with losing money. Some people get so affected after losing that they become psychological wrecks. As a trader, you need to do a few things to protect yourself from having psychological problems after losing. First, you must understand that trading is a win and lose game. You will not have successful streaks all your life. Second, you must be psychologically prepared to lose money any time you open a trade.

  • Risks of losing it all

There is also the risk of losing all your money in trading. I have seen people who have lost a good amount of money through trading. I have also seen people lose all their money within a matter of hours. This is a risk that can be prevented. First, you should consider the risks that you take when opening a trade. Ideally, you should always open a trade with a very small lot size. A big lot size means that you will lose more money if your trade fails to work out. Second, you should consider having a stop loss that limits the amount of money you lose if your thesis fails to work out.

  • Addiction

Trading can be an addictive thing to do especially if you are a successful trader. Just like gambling, this can be a serious problem if it is not controlled. I usually advice people wishing to become traders to do the best that they can to trade for a short period of time every day. In most cases, most people who are addicted to trading find themselves losing money in the long term. This is because they overtrade. Remember that too much of everything is poisonous.

  • Overnight trades

This is a risk common among swing traders. This is a situation where a trader opens a trade and waits for a few days before closing it. The issue here is that anything unexpected can happen at night when markets are closed in their region. For instance, when USA launched missiles in Syria, it happened when US markets were closed. Markets fell soon after that. Therefore, if you had an open overnight trade, chances of losing the money were high. To remove this risk, you should consider having a stop loss to prevent huge losses from happening.

  • Risk of Market data

At times, we use different indicators to help us predict the market. A good example is what happened last week when major banks released their earnings. Before Goldman Sachs released its earnings, the previous banks had released excellent results. Therefore, most people expected Goldman’s results to be great. When Goldman released, the results were not very good which made the markets to fall.

Top Risks Associated with Trading and How to Avoid Them – Useful Tips:

How to Make Trading a Full-Time Career

How to Make Trading a Full-Time Career

How to Make Trading a Full-Time Career – Introduction

It is possible to quit your job and become a full-time trader. There are many benefits of being a full-time trader. First, as a trader, you have total control of your time. Second, as a trader, you have control of everything in your life. You won’t have a boss to tell you what to do and what not to do. Third, as a trader, you have access to the market 24 hours, five days a week. Fourth, you can have your weekend doing other things since markets are not open during the weekends. In this article, I will highlight on wat you need to do to become a full-time trader.

  • Have a plan

The first thing you need to do is to have a short term and a strategic plan. This plan should be focused on where you are right now and where you will be in future. For instance, if you are a college student, you should plan whether you will get into trading immediately after college or you will be employed at first. If you are already employed, you should plan how you will quit your job. Remember, trading is a risky business and you should trade with money you don’t need. Therefore, you should do the best that you can to come up with a plan of your future.

  • Learn and practice

If you want to become a full-time trader, you should take time to learn and practice. As mentioned, trading is a risky business and you can lose your money any time. You don’t want to become a full-time trader and see your money disappear. Fortunately, there are so many materials out there that can help you become a better trader. There are companies that are dedicated to training people on trading. Most brokers also offer some courses on trading.

  • Start as part time

You should not quit your job to become a trader immediately. Instead, you should start as a part time trader and see how it goes. If you are employed, you should set your trading hours when you are not working. The benefit of starting as a part time trader is that you get the chance of seeig if trading is for you. You get a chance of seeing if this is something you can take long-term.

  • Combine trading with strategic investing

The beauty of trading is that it can make you a lot of money within a short time. However, the downside risks are also huge. To protect your finances, you should instead combine short-term trading with investing. In this, you should invest in fixed income like bonds. You should also invest in high quality dividend-paying companies like Apple and Microsoft. The benefit of doing this is that it will be a good way of ensuring that you have a safety net in case the trading doesn’t work out fine.

  • Start a trading floor

You can also benefit by starting a trading floor. A trading floor gives you an opportunity to trade in large volumes using proven strategies. Day Trade the World is the biggest day trading floor in the world with floors in every continent. As a manager of a floor, you will have the people and the tools to execute trades for you. The floor will make trading a very interesting thing for you.

How to Make Trading a Full-Time Career – Useful Links:

Five Things to Look at In the Remaining Part of the Year

5 Things to Look at In the Remaining Part of the Year

5 Things to Look at In the Remaining Part of the Year – Introduction

The year is moving fast. In the first quarter, Trump was sworn in as the president of the United States, the Fed raised interest rates, and the stock market reached an all-time high. No major movements were seen in the crude oil market. In the remaining part of the year, investors should look at the following things.

  • French Election

Yesterday, France held its first phase of election. Emmanuel Macron and Marine Le Pen won the first phase and will meet two weeks later. After the election results were announced, the Euro spiked to a 15-month high. Macron is a new comer who has not served in government before. He prefers a strong euro. On her part, Marine has been involved in politics all her life. Her father is the founder of the party she ran on. She prefers strict immigration rules, a France exit from NATO, and an exit from Euro. In the next two weeks, new alliances will be formed which will likely determine the eventual winner. As a trader, you should pay close attention to the alliances that form and the poll results. If Marine wins, it will usher in new tensions in the Eurozone.

  • German Election

Later this year, Germany will go to an election to elect the new chancellor. The incumbent, Angela Merkel is expected to have the toughest competitor from former European Parliament head, Martin Schultz. Angela Merkel is hugely popular in Germany and she is credited with the country’s economic resurgence. Part of the reason why Germany is so successful is its involvement in the Eurozone. If Merkel loses the election, the Euro will fall as investors study the policies of the new chancellor.

  • Federal Reserve

The Fed will play an important role in the remaining part of the year. As you already know, the Fed, under the leadership of Ben Bernanke brought the interest rates to zero following the financial crisis. As the economy progresses, the Fed has started increasing interest rates to slow down the economy. This year, most investors expect the Fed to increase the rates two more times. This is already priced in the market. As a trader, you should pay close attention to the interest rates regime and the words from federal reserve members.

  • Geopolitics

As a trader, you should pay close attention to the geopolitical issues. A few weeks ago, United States, launched missiles in Syria, angering Vladimir Putin. A few days later, the U.S. sent a war ship near the Korean Peninsula, angering the young leader, Kim Jong Un. North Korea has threatened to sink the ship sent by the United States. A U.S. attack on North Korea would without a doubt lead to war in the Asian part. This would interrupt trade, since China is North Korea’s largest trading partner. Japan and South Korea who are United States allies would be attacked by North Korea. Also, it is thought that North Korea has missiles that would reach the United States. Therefore, as a trader, you should pay close attention to these geopolitical issues.

  • U.S. Policy

U.S. is the biggest economy in the world. The new administration has promised huge spending on defense, huge tax cuts, deregulation, and a massive investment on infrastructure. Investors are waiting for indications on when all this will happen. This week, Trump has promised to issue a statement on tax relief for companies and individuals. In the remaining part of the year, investors should look at indications on when all this will happen.

 

Five Things to Look at In the Remaining Part of the Year – Useful Tips:

  • For further information please go to Theguardian
  • More interesting reading on Reuters
  • To find out more on the matter please visit Edition
Top Reasons Not To Give Up After a Loss

Top Reasons Not To Give Up After a Loss

Top Reasons Not To Give Up After a Loss – Introduction

Lars Kroijer is a former hedge fund manager and the author of a book called Money Maverick. The book describes how Lars went from a top analyst at a top investment bank in New York to starting a hedge fund in London and his exit from the business. Lars raised more than $400 million for his hedge fund and made good returns for his investors before losing 3% in one year. After the loss, he gave up and shattered his firm. As a trader, you will lose money. No one has a record streak of winning trades in this business. In this article, I will explain a few reasons why you should never give up after a loss.

  • You are in good company

When you make a loss, you should remember that you are in good company. Most of all the traders and investors you know have made losses in the past. Warren Buffet bought a shoe company that went bankrupt. Ed Lampert, the famous investor is now losing billions of dollars as the Sears company he owns collapses. Bill Ackman lost $4 billion in the Valeant Pharmaceuticals investment. Bill Gross, the former bond king has had a below par performance. David Einhorn, one of the most successful investors lost money after the solar company he invested in went bankrupt. Dan Loeb and all the other famous hedge fund managers have at some point in their careers lost money. Therefore, you are not alone.

  • Take losses as stepping stones

You should take your losses as a learning experience. The minute you exit a trade after a loss, you should take time to learn from that. By learning, you will avoid making the same mistake next time. In my experience as a trader, I have learnt a lot from my past mistakes than I have done with my past successes. Therefore, anytime you close a losing trade, take time to think about it and learn from it.

  • Lost Opportunities

By giving up on your trading career because you made a loss, chances are that you are losing out on potential opportunities. As you have realized by now, there are so many opportunities in the financial market that you can take part in. In fact, you can make money no matter the direction the assets are moving in. Therefore, when you decide to give up on trading, remember that you are losing more opportunities to make money. Moreover, using strict risk management strategies you can easily reduce the risks of making huge losses. Always ensure that you have a stop loss in all trades that you enter.

  • You can reduce the risks

Prevention is always better than cure. In the trading world, it’s possible to reduce the amount of money you lose per trade. One way of reducing the risk is by having a stop loss. A stop loss is a tool that allows you to limit the losses that you make. For instance, you can allocate money in such a way that you will lose only 10% of your money in the worst-case scenario. This will help you minimize your losses and help you become a better trader.

Top Reasons Not To Give Up After a Loss – Useful Links:

Quarter

First Quarter in Review

First Quarter in Review – Introduction

How time moves first. The first quarter of the year is now over and many things have happened. Some of these things could be an indicator of what comes next in the remainder of the year. In this article, I will review some of the things that have happened during the quarter and their implications.

Trump In

On January 20th, Trump was sworn in as the 46th president of the United States. This brought in a new era for the United States and to a small extent, the globe. Trump is the first U.S. president without previous experience in government and military. He promises to deregulate the country and lower taxes. In the first quarter, his health bill failed to get enough votes. His plan to ban travel from several countries failed. Investors, who began the year on a high note are now a worried lot. They are not sure whether Trump’s plans will pass congress or not. As a result, the market has fallen from the all-time high it reached in the quarter.

Improving economic data

In the United States, the economic data released in the quarter has been good. The unemployment rate is currently at the lowest level in years. So far, more than 600,000 new jobs have been created. In addition, small business confidence is at the highest it has been in more than 17 years. Manufacturing is also improving. Retail which struggled in the past year is seeing an uptick also. Federal Reserve began increasing interest rates. Investors have priced in 3 more rate hikes in the remainder of the year.

Geopolitical Tensions

This past quarter has been big on geopolitical tensions. First, there has been a lot of tensions between United States and Russia. Trump campaigned on the promise of improving relations with the country. He even said he was willing to meet with Putin before his inauguration. Three months in, he has not. America is carrying out investigations on possible links between his campaign and Russia. Second, Trump launched missile attacks in Syria, a country that is allied to Russia. Third, Trump campaigned on the promise of building a border wall and letting Mexico pay for it. He also promised to increase taxes on goods from Mexico. Still, nothing of the sort has happened. There are also tensions in the North Korea peninsula.

IPOs and M&A

In the first quarter, a few notable companies held their IPOs. The most notable one was the SnapChat IPO that helped propel the company to a $20 billion valuation. Other notable IPOs in the quarter were: MuleSoft which raised $220 million, Hamilton Lane which raised $190 million, and Alteryx which raised $126 million. In the M&A space, there was no notable mergers in the quarter. The Kraft Heinz bid to acquire Unilever for $143 billion was the most talked about IPOs.

Crude Oil

The crude oil price has remained almost the same in the quarter with Brent having a high of $56 and a low of $45. The optimism that mired the crude oil world faded as concerns of oversupply and cheating by OPEC countries lingered. In the start of the year, there was optimism that the oversupply issues would be done away with after OPEC members agreed to limit production. This hope has faded as it has emerged that some countries have not cut the production.

In the remaining part of the year, these things are likely to continue. Investors should look at how geopolitical issues are handled. They should also look at how Trump addresses the key issues he raised during the campaign like deregulation and tax cuts. They should also look at corporate earnings and how they perform. Long term investors should take time to research companies that have been ignored by investors which might have made them underpriced.

First Quarter in Review – Useful Links: