What are 5 Common Risks To Take Care Of While Trading Online?
What are 5 Common Risks To Take Care Of While Trading Online?
There is no doubt that, with the proliferation of digital channels, our lives have become much simpler. Everything in the world is now at our fingertips.
The dotcom revolution has simplified stock trading as well. With real-time stock trading apps making trading easier than ever before, a day trader’s time during the market hours is well sorted.
While trading apps and computer terminals are there to make trading simpler, it also exposes you to the many unprecedented dangers that are associated with the internet.
Read this article to better understand the risks that come with online trading and the things you can do to steer clear of the risks while trading online.
Check Out What are 5 Common Risks To Take Care Of While Trading Online?
Gone are the days when you had to fill slips and stand in a queue at the broker’s office to place orders for buying or selling stocks.
Now, you can open a trading account, pick stocks, load cash, and place buy or sell orders, all within a few minutes.
Online trading offers several benefits like reduced transaction fees, better access to real-time stock prices, speedy trade executions, more control over your finances, and the flexibility to properly manage and evaluate your asset allocation strategy.
Despite the massive benefits that online trading offers to traders, the following risks, if not handled properly, can as well make you regret the decision to trade online.
The following are the top-5 risks of online trading and the things you should do to stay one step ahead –
1. Impulsive Buying and Selling of Stocks –
With online trading, buying or selling stocks usually do not take more than a few seconds.
Amateur traders often make the mistake of selling stock as soon as it starts rising or falling too fast. Similarly, they buy when they consider a price to be too attractive to resist, mostly to discover later that the price has entered the downward trajectory.
The stock market is a place of opportunity. Catch the momentum right, and you can expect heavy profits. Miss it, and you may lose your entire capital.
The only way to avoid impulsive buying is by picking high-quality stocks with impressive fundamentals and setting strict stop loss and target. Once you set the stop loss and target, do not budge from your standpoint, however much the market entices you.
2. Lack of Expert Advice –
Online trading can often make you feel alone. Unlike brick and mortar brokers, online brokers would rarely call you for offering advice, unless requested. This means that whatever decisions you take will be solely yours, which includes all right and wrong decisions.
It is a fact that amateur traders, when they trade all by themselves, are more prone to making mistakes. And, in the stock market, even a small mistake can inflict damage beyond repair.
While there is no guarantee that the advisory service provided by the broker would be sound or not, sometimes talking to an expert may help you pick some interesting things.
The best way you can alleviate the stress of trading alone is by making yourself a part of trading communities, researching by reading books or watching video tutorials, and checking company fundamentals and news.
Unlike what most amateur traders perceive, online trading can be rewarding only when you are willing to invest time in studying and researching stocks. But, once you get the heck of it, nothing can be as blissful as trading online.
3. Online Trading Can be Addictive –
Online trading is easy and often addictive. In this respect, trading can be likened to gambling.
There are times in the market when the price of a stock might not move in the direction you expect it to. While expert traders would rarely average when a stock starts behaving differently, beginners often get overjoyed and pick up the losing stock in more numbers, hoping to make bigger and better profits.
Then there are times when a trader would lose their entire capital on a wrong trade and get on revenge mode. They put in more money, hoping to reverse their losses and end up losing more money in the process.
To save yourself from the pain of losing your hard-earned money, you should treat trading as a business, and not gambling. Devise a strategy, test it, and implement it to the tee, irrespective of market conditions.
At this point, it is prudent to know that the hallmark of an expert trader is patience. Be patient, and no one on earth can probably stop you from making money from the stock market.
4. Excessive Dependence on Internet –
Online trading almost entirely depends on an internet connection. The higher the speed of the internet, the faster the order processing. And, in the world of trading, timing is everything.
Before donning the trader’s hat, check the stability and the speed of the internet connection in your area. If you live in an area where the internet service is erratic, it is better to keep a back-up plan ready before entering a trade. Alternatively, you may place a limit order as soon as you enter a trade.
5. Trusting Algo Trade Signals Blindly –
Commission free trading is the new rage in the field of online trading. In recent years, there has been a spike in the number of online brokers who provide Algo trading against a fee or for free.
However, quite often, the Algo trade results look flawless on screen, and yet when you start trading, you realize that the story is something different than what was shown to you. Remember, most of the results you see are back-testing data. Hence, there is no guarantee that the performance will be repeated in the future.
To avoid losing your money due to erroneous Also signals, you should trust brokers like Alpaca, whose robust and time-tested stock screening mechanism ensures near-flawless stock filtrations.
The stock market can be a fascinating place to be if you know the right way and the right side to trade. Online trading has further simplified the trading business.
Keep an eye on the latest trends, developments, news, and events that are most likely to have an impact on stock prices. It is ultimately your research that will help you to pick stocks that are certain to generate high returns, irrespective of the market conditions.