Online Trading: Risks for Beginners
March 20, 2023
Online trading is an enticing activity, even for those who actually know little about it and have only superficially experimented with its potential.
Indeed, online trading can be profitable, but only under certain conditions and only at the cost of commitment and sacrifice. Not all that glitters is gold, especially for those who believe they can buy it at a low price.
The reference is mainly to some significant risks, which broadly involve all traders, but which can cause damage especially to beginners.
We discuss them here, first paying homage to the complexity of online trading, and then analyzing these risks, one by one.
Online trading, a complex activity
Online trading is complex for a whole series of reasons. Firstly, because... It's crowded. The market is participated by millions of people, who together generate impressive and above all little predictable movements (if not with a very wide margin of error). Among other things, traders belong to different categories, with different resources and equally different purposes. The spectrum is wide and varied, ranging from "micro" traders to institutional traders.
Another reason for complexity coincides with the interdependence relationship that binds assets with the external environment, i.e., with events. Market and environment are not watertight compartments, but rather influence each other. This increases the variables at play to an enormous extent, and therefore the elements that the trader must take into consideration.
Another reason for complexity lies in the peculiarities of the tools that the trader is called upon to use. The platforms must be "learned", the Brokers must be well selected and in any case managed. It is also necessary to become familiar with analysis tools, indicators, even with financial news.
The major risks for beginner traders
So, what are the risks that actually endanger traders? Here's an overview.
Volatility
It's a foregone risk, in the sense that those who operate as traders already know that they will have to face a certain volatility. This does not mean that all markets are volatile in the same way.
Some are stormy, others less so. In a hypothetical ranking, first place would be awarded to cryptocurrencies, which are actually protagonists of powerful and frequent fluctuations. The second place could be the prerogative of stock exchanges, whose swings have now become proverbial. Followed by Forex, commodities, etc.
Volatility is a risk as it generates disorientation, invalidates analyses or in any case makes them difficult.
How is volatility addressed? With a solid risk management and asset management plan, which for example provides for forced exits under certain conditions (e.g., stop loss and take profit).
Emotional pressure
Emotional pressure is a problem for all traders but especially for those who have not yet gained the necessary experience. Emotions are an integral part of trading activity, as the stakes are high by definition. Yet, they can only be managed, never suppressed.
Those who do not manage emotions well risk losing lucidity and making wrong choices. Incidentally, these dynamics act in good and bad luck. Those who lose a lot risk paralyzing themselves in the face of a new trade or, conversely, intervening frantically to compensate for the loss. Those who win can be seized by a sense of euphoria and a feeling of invincibility.
Bad teachers
The issue concerns the complex topic of training. There can be no doubt about this: to succeed in online trading, you need to study. However, the crucial question is: from whom? Choosing the right trainers is essential, as well as opting for the most effective, comprehensive, and well-focused educational content (not dispersive).
Bad company
Another significant risk, which almost exclusively concerns beginners, regards the choice of brokers. Although the environment has been almost entirely reclaimed (at least compared to a few years ago), some bad apples remain. Falling prey to them is easy, also because they generally come up with enticing offers. The consequences are disastrous: in the best case, you will operate in an environment designed to encourage mistakes by the trader; in the worst case, you would suffer real scams.
