All forms of investing and trading is associated with risk. The main risk is the risk of losing investment funds which is why there are basic trading rules such as “don’t invest money you can’t afford to lose” and “never chase your losses.”
Nevertheless, many people are so afraid of the potential risks that it keeps them from ever investing. Unfortunately, there’s no way to eliminate trading risks — but there are things you can do that will help you come to terms with them.
The Risk Associated With Investing and Trading Online
To get a better idea of what causes some people to be so afraid of investing and trading, it’s important to take a look at the involved risks. Only after that can one start looking at ways to deal with and eliminate some of these fears.
Of course, the main risk and concern people have with investments and online trading is the risk of losing money. All the money you invest in a security or place on a single position could potentially be lost.
Moreover, this risk is further magnified when using online brokers since you’re presented with the option of using leverage; leverage and margin are great ways to increase your exposure for each position, but it also increases the overall risk and the amount you could end up losing. You could, in fact, lose more money then you’ve invested when using leverage.
Besides the fear of losing money, many traders are scared of failing or being incorrect with their analysis. Thankfully, the solution is the same for all these fears and concerns.
Ways To Combat Your Fears
Every successful and experienced traders would agree that there are certain specific things that one can do to calm down before investing or trading. These methods can be divided into the following four categories:
The most important thing to keep in mind when first starting to trade in order to fight the fears associated with trading is preparation. Without proper preparation, you will be trading blindly, and the risks will ultimately increase substantially.
You have to be adequately prepared — both before you start trading for the first time as well as for each new position you want to open. Learning how to properly analyze and evaluate securities is therefore absolutely crucial.
The more skills and knowledge you have, the better your ability to make correct decisions will be. In addition, that will make it easier to handle and adapt to any fears of making a mistake and losing money.
Learning how to find value in the market and place long-term investments or day trade assets is a long process. Moreover, most traders lose money when they first get started, and it often takes people many years to perfect their skills. That means you have to study the markets you’re interested in, you have to learn from other successful traders, and you have to spend enough time actually trading and investing to learn all the necessary skills.
Today, you have the option of taking a short cut by opening a demo account with an online brokerage. By doing so, you’ll get the opportunity of trading and investing under real market conditions but in a completely risk-free environment.
As previously mentioned, there is no way to eliminate all the risks of investing; that being said, there are methods one can apply to minimize them. For example, by using stop-loss it’s possible to control the maximum amount that can be lost, or even lock in profits. Signing up with a broker like eToro that features copy trading is another great tip since it limits the amount of work you have to do before opening a position; eToro actually allows you to copy more successful traders so that you don’t have to work at all.
Other popular methods to minimize risks include hedging, diverse portfolios, account managers, and proper analytic work.
Accepting Your Insecurities
Lastly — and this is a lesson that can be applied to all areas of life — is the ability to accept your insecurities and fears. All of us will continuously be faced with hardship and risks throughout life, and all we can do when that happens is to accept it for what it is. Therefore, before you decide to start investing or trading, you must come to terms with the risks involved as well as how you react to those risks. Remember, all successful investors have found ways to deal with their emotions by not letting fear affect the way they operate in financial markets.
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