Thursday, May 30, 2024

Beginner mistakes: The classic trading pitfalls to avoid

Whether you are looking to gain some extra cash, or even look for a new career, trading has exploded in popularity over the last few years.

It has now become more accessible than ever and whether you are trading CFDs or more “standard” options, there is a lot more potential to turn a profit.

Of course, whenever there is profit potential, there are also possibilities to lose money. As a beginner, the risks naturally increase, and this is what today’s article is about.

We have compiled a list of some of the more common mistakes that are made in the world of trading by beginners, to give you the best possible chance of coining a profit during the early days.

You follow the crowds

Sure, there must be a reason why everyone is investing in a particular stock, but by the time you have jumped on the bandwagon there’s every chance that it is too late. Usually, you’ll be paying through the nose for such stocks, and that good investment will have actually become very expensive.

There’s no doubt that trends are there to be followed, but at the same time it’s important to know when they become too crowded. As a beginner, it can be difficult to gauge this and as such, this is a strategy we would strongly urge against.

You follow the tips

Similarly to above, another primary error is to listen to tips. The very worst thing that can happen in these cases is that you actually profit from one of your first tips – as this will just encourage you to do it more often. Suffice to say, over time this tends to be a losing strategy.

Each trade should be made on merit and you should understand all of the math. It might be tempting to act on a tip from the television, but if one were to analyse the success rates of these it would quickly become apparent that this is not a successful, long-term strategy.

You forget the hidden fees

Whether it is tax or brokerage fees, don’t forget to build these into your trading plan. In relation to the former, you can get a tax break on some investments, but it doesn’t include everything and in no time at all your profits can be wiped out. The same rules apply with fees and this is one of the reasons it is crucial to shop around when looking for a broker.

You use too much margin

This final mistake is probably one of the most technical; but you need to be warned. In some cases, margin is something that works like a charm. After all, this is the thing that can allow you to maximise your profits by effectively “borrowing” money.

Well, let’s not forget the opposite side of the coin. Margin is also something that can inflate your losses and as a beginner, this is probably an even more important point to note.

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