Online trading is as much of an art form as a science. Just as there is no such concept as perfect advice” or a “sure thing,” there are many pitfalls that must be avoided in order to enjoy success. Unfortunately, countless investors only learn these lessons after trial and error. It’s important to start off with the correct mindset so I’ll examine below five of the most common trading mistakes to avoid at all costs.
The Temptation of Margins
Many online sources cite margin trades as excellent ways to turn a small financial outlay into a small fortune. However, large profits and large losses are two sides of the same coin. Investors lured by massive returns must keep in mind that higher margins equate to greater levels of risk; sometimes far outweighing the initial investment. It is best to avoid this strategy until more experience is gained.
We are once again referring to the concept of a “sure thing.” Regardless of one’s experience, every trade contains a certain amount of risk and there are no certainties within the marketplace. Even if a suggestion appears to be carved in stone, do your homework. A bit of research can go a long way towards mitigating the chances of taking a substantial loss.
Day Trading Dream
All of us have seen advertisements which claimed that an individual made thousands of dollars in a single position with the help of day trading. This is the exception more than the rule. The main principle to recognize is that day traders will have to keep abreast of changes that take place every second. Unfortunately, most online platforms have difficulty tracking such volatility. Every percentage point counts and what could appear to be a winning position can quickly devolve into a massive loss. Day traders rely upon instinct, skill and experience. Until you feel confident that you possess all three, it is best to stay away from this strategy.
The Low-Cost Lure
“Never buy when it is high.” This is a common expression within the world of investing and therefore, many believe that a stock should be purchased only when it has sunk to very low territory. However, there may not be any certainties that the value will rise again. Consider Enron as an example here. This is once again the reason why both technical and fundamentals need to be studied. What is the history of the company, what are its projections and what are the experts saying?
Choosing the Wrong Trading Platform
Even if you possess stellar trading skills, they will be useless if you select the wrong type of online architecture. Some platforms do not offer real-time feeds while others may be poorly regulated or charge high commission fees. This is one reason why it’s smart to work with reputable firms such as CMC Markets, who have been trading for over 25 years. Go with a system which boasts a strong reputation and a variety of tools that will help to accentuate any existing strategy.