The investment world is as complex as it is alluring, as there are a wide array of asset classes and markets in which you can generate a profit.
However, the financial markets are also incredibly immersive and fast-moving, which means that it’s incredibly easy for investors to become overwhelmed when they first start out. Naturally, this can cloud traders’ decision making. With that in mind, here are some of the biggest mistakes to avoid and the reasons for why they can be so damaging:
Failing to do the Requisite Research
This is arguably the single biggest trading mistake, and one that can occur regardless of your chosen market or asset classes.
Failing to do the requisite investment research is also more prevalent than ever before in the world’s financial markets, thanks to concepts such social trading which make it easier than ever to follow expert opinions and portfolios. However, it’s crucial that you research specific markets and the factors that shape them, from the macroeconomic events that impact on the foreign exchange to the company news that underpins share prices.
Similarly, you should always target markets based on a solid foundation of knowledge, while also honing this with practical market and trading experience.
Not Choosing a Reputable Broker
In the digital age, most traders access their chosen markets online, through reputable and licensed brokers that can facilitate trades, underpin research and provide access to analytical datasets. However, not all brokers have been created equal, either in terms of the commission fees that they charge, their market coverage or the products that they offer access too.
Worryingly, we’ve also seen a rise in the number of rouge and unlicensed operators as trading volumes have exploded, so it’s crucial that you look for a platform that has at least been accredited by a reputable agency such as the Financial Conduct Authority (FCA).
If you’re trading currency, we’d recommend targeting the lowest spread forex broker, while aiming to minimize your transaction fees as much as possible.
Jumping on the Bandwagon
While the term FOMO (fear of missing out) isn’t exclusive to trading, it has a huge bearing on investors and how they manage their activity.
In the financial markets, however, it refers to the fear of missing out on what’s perceived as a big investment opportunity, which can trigger emotive and ill-judged trades that ultimately cost you money.
There are various factors that cause FOMO, from volatile markets that are trend driven to big winning streaks that cause you to become increasingly and disproportionately risk hungry.
FOMO can also engulf traders at any stage in their journey, so you’ll need to remain watchful and retain a sense of determinism that enables you to avoid emotive decision making as an investor.
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A lot of Robinhood investors found out exactly how shaky their brokerage was when they couldn’t make their margin call. Picking a solid discount broker is very important, even for investors with smaller portfolios.