Trading Risk

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Published: November 18th, 2020 by Andrew

When you operate on the financial markets there is always a percentage of trading risk. Anyone who claims that it is possible to trade without risk lies and is probably a course seller or a scammer.

In reality, trading presents various risks, some of which can be completely avoided, while others can only be controlled. In this article we will explain what the main risks of online trading are and how they can be eliminated and / or controlled.

Since risk management is also closely linked to the platforms that are used to trade online, we will talk about some of the best trading platforms, such as eToro.

The main Risks of Online Trading

Online trading is a speculative activity that can generate very high profits but, at the same time, it can also generate losses. The trader therefore takes a percentage of trading risk.

Some of these risks can be avoided completely, others must be controlled.

Here are what they are:

  • Risks of Scams or violation of the regulation by trading platforms
  • Risks due to lack of knowledge of trading or some tools
  • Market risks

The first two risks can be completely avoided. The third one, on the other hand, is part of online trading: in practice, these are the risks that you cannot eliminate but which you can minimize with the appropriate tools.

Let’s now see in detail the various risks and how it is possible to avoid and / or control them.

Online Trading Risk and Scams

It is useless to go around: the history of online trading is full of scams, so much so that some think that online trading is just a big scam. Obviously we know that online trading is not a scam but we must always keep in mind that there can be scams.

Indeed, about the trading risk, the danger of losing money for a trading scam is truly concrete and mainly affects those who start trading online for the first time.

It is estimated that every year, in Europe, there are losses in excess of € 800 million due to scams or behavior that in any case violates the legislation that protects traders.

In fact, European investor protection legislation is very strict indeed; in fact, sometimes even too much, for example the regulations on leverage actually protect investors from their mistakes.

Those who operate on the financial market with trading platforms that comply with European regulations to the letter are absolutely protected from any type of scam.

How do you get the absolute guarantee that a platform complies with European legislation? Simple, just operate with a trading platform that is authorized and regulated.

Below, a complete list of the best authorized platforms: we have selected only trading platforms that, in addition to being safe, are also very easy to use, even for a beginner, and without commissions.

Platform: etoro
Min. Deposit: 200€
License: Cysec
  • Social Trading (Copy the best)
  • Simple and intuitive
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: xtb
    Min. Deposit: 400€
    License: Cysec
  • Free demo
  • Whatsapp Group
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: iqoption
    Min. Deposit: 10€
    License: Cysec
  • Free demo without limitations
  • Minimum deposit low
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: ubrokers
    Min. Deposit: 250€
    License: Cysec
  • Free Training
  • Zero Commissions
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: trade
    Min. Deposit: 100€
    License: Cysec
  • Free demo
  • Free course trading
  • ➥ Start
    1star 1star 1star 1star 1star
    75.80% of retail CFD accounts lose money
    Platform: forextb
    Min. Deposit: 250€
    License: Cysec
  • Free trading course
  • Free trading signals
  • ➥ Start
    1star 1star 1star 1star 1star

    eToro

    eToro is one of the beginner’s favorite online trading platforms. It is a really simple to use platform, even for those who do not really know where to start. The reason?

    Thanks to eToro it is possible to copy, in a completely automatic way, what the best traders in the world do.

    The software, patented by eToro, allows, in fact, to easily find traders who in the past have obtained the maximum profit with the least risk. These traders can be copied automatically: it will be the software that will take care of replicating all their operations.

    Copying the best traders on eToro is an ideal way to start trading online: you start immediately to get good results and you learn by observing what the best do.

    You can sign up for free on eToro by clicking here

    Warning: copying the best does not mean canceling the trading risk completely. It is true that those who have made a lot in the past will most likely continue to do so in the future, but there is no guarantee that this will happen. We will see below what are the techniques to further minimize the risk when using eToro.

    If you want to know more about this broker, you can read our full review here. 

    ForexTB

    ForexTB is the other great option for those who want to start trading online without making mistakes and without problems.

    The ForexTB platform is really easy to use, even for a beginner. In addition, all members receive free phone support from a real trading expert who provides precise information and advices.

    Who wants to learn the secrets of online trading in depth, has the possibility to download for free a great ebook that really explains everything you need to know to make money with online trading.

    The success of the ebook was truly amazing: more than 100,000 downloads in a few months. The reasons?

    1. The ebook is free, while most online trading courses are paid and cost a lot
    2. It does not use complicated technical terms, it is truly suitable for everyone
    3. It is practice-oriented and does not waste time with theory. Unfortunately the vast majority of the other trading are all theory and zero practice. And, remember, they are also paid while the ForexTB course is free.

    You can download the ForexTB ebook for free by clicking here.
    Moreover, with ForexTB it is possible to operate in demo mode, a risk-free simulation (virtual money is used). In this way you can quickly accumulate valuable experience without any kind of risk. ForexTB is official partner of the Italian football club Juventus.

    You can sign up for free on ForexTB by clicking here

    If you want to learn more about ForexTB, you can read our full review here.

    Iq Option

    Iq Option is the preferred choice for those who want to start trading online with a very small capital: it is the only platform, in fact, that allows you to start with just 10 euros. The other recommended trading platforms, for example, require between 100 and 250 euros.

    In practice, Iq Option is chosen by all those who want to start trading online but don’t want to risk too much money. The platform is very simple to use, even for those who are truly beginners and offer an impressive number of courses, completely free, which explain online trading from the basics to the most complex strategies.

    If you want to know all the benefits of this broker, you can read our full review on Iq Option here.

    Iq Option also offers an exceptional free, unlimited and unconstrained demo account, perfect for accumulating risk-free experience.

    You can sign up for free on Iq Option by clicking here

    Trading Risk: Beware of easy money promises

    We published full reviews of some of the best safe online trading platforms. These platforms never promise easy money or safe earnings: on the contrary, they warn their traders of the online trading risk.

    The platforms (or automated trading systems) that in the end cheat are the ones that promise easy money and unfortunately they are a serious risk for those who want to become a trader!

    One of the most dangerous scams, for example, is Bitcoin Code. Well, in this case the scammers promise earnings of many thousands euros per month, starting from a small initial investment, thanks to a miraculous method to trade Bitcoin.

    Obviously the profits are null and those who fall into the trap quickly lose a lot of money. Much better to trade seriously with effective techniques like Intraday Trading.

    Read also: RSI

    Online Trading Risk and ignorance

    There are traders who start trading on the forex market without knowing what it is and how it works. In some cases they even manage to make some money and boast about it on the forums (doing a lot of damage because then people really think that online trading is a way to make easy money) but the beginner’s luck must not deceive anyone: in most cases, starting to trade online without adequate preparation is a very serious trading risk.

    Anyone who decides to start forex trading, should immediately take a good forex course. There are free courses (like this one) that explain everything you need to know and can be done quickly online, without even wasting time.

    In general, starting without adequate preparation is a really big trading risk. Many of those who start trading with unregulated broker platforms do so because they don’t even know that they should trade with a regulated and secure platform.

    Another example of the damage of ignorance for those who claim to start trading online without studying? Few beginners know that trading losses can be severely limited by using a tool called a Stop Loss.

    In practice, thanks to the Stop Losses, it is possible to decide what is the maximum loss that you are willing to give on every single operation. Stop losses represent an incredible weapon in the hands of traders and it is not even complicated to use. Yet many beginners don’t know this and suffer losses that they could have easily avoided.

    For this reason, we recommend those who want to trade online to study before starting.

    Many think that studying is complex or expensive. And perhaps in the past it was. But today there are free ebooks like this that really explain everything you need to know to earn with trading.

    There are no more excuses for ignorance.

    Read also: Pivot Point

    Online Trading Risk related to the market

    This is the trading risk that cannot be avoided in any way. To understand this, you need to go to the root of what trading really is.

    Many think (mistakenly, about the risks of ignorance we have already spoken) that to make money with trading, one can only buy financial securities, waiting for their value to rise. Wrong.

    There is also another opportunity, which is to Sell Short a security to earn when its value drops.

    Trading online means making a profit from any movement in the price of a security, both positive and negative (up or down). To earn with trading, therefore, you need to make reliable predictions on the market trend (or you have to copy the best traders on eToro, but this is another matter).

    What happens if you make a wrong prediction? In this case there is the risk of losing money.

    Now, nobody has a crystal ball, so nobody is able to predict in 100% of cases what a financial security will do. Good traders do it almost always thanks to technical or fundamental analysis tools, but nobody is able to predict the market trend with 100% absolute certainty.

    So, here is what we call trading risk related to market risk. These are risks that cannot be eliminated but that can be controlled using appropriate techniques and tools.

    Trading Risk and the capital control

    The first method, that can help you to control the online trading risk is to control the capital invested and its use. Let’s start immediately by remembering that the best online trading platforms allow you to operate with very small capitals: in one case even 10 euros (Iq Option) are enough, in all the others a sum between 100 and 250 euros is needed. Obviously, these are not large sums.

    For the beginner it is not advisable to start with a very high deposit and, in any case, it is advisable to use for online trading only sums that you can afford to lose.

    But be careful: the money deposited into the account of a trading platform are absolutely not at risk. It is the same, in all respects, to money deposited in a bank account. It becomes at risk when it is used to make an operation (buy or short sell).

    For this reason, it is always recommended to use only a small portion of the capital deposited on each transaction. In this way, even if something goes wrong, the losses of the single operation would be more than offset by the profits made with the others.

    Stop Loss

    We have already mentioned stop losses. It is a maximum loss level that can be specified for each operation. In this way the trader has the possibility to decide how much he wants to lose (if everything goes really wrong) on that operation.

    Most novice traders think that zero should be set as the maximum loss, but it is not a good choice. This is because financial securities may experience small temporary fluctuations that could generate a tiny nominal loss and would immediately close the operation. In practice, trading would be a kind of game, without risk of loss but with a rather low profit probability.

    For this reason, it is always advisable to evaluate the stop loss setting with a little attention. A good trading course explains in detail how stop losses are set.

    Take Profit

    Take Profit is a complementary tool to stop loss: it indicates what is the maximum profit to be obtained from a single operation. When that profit is reached, the platform automatically closes the operation.

    It may seem unintelligent to set a maximum profit, but it is a smart choice: it serves to close the operations when it is believed that the maximum possible profit has been reached.

    Not all traders set take profits, in fact, but it can be considered a way to escape the effects of the proverb: grasp all, lose all.

    Stop loss and take profit are the basic elements of any trading system.

    Control the trading risk of Copytrading

    When we talked about the eToro trading platform, we explained how Copytrading works: you select the best traders, those who made the most in the past, with the least risk, and the software automatically takes care of replicating all their operations.

    Many novice traders mistakenly think it is a way of making easy money.

    This is absolutely wrong, it takes time initially to select the best traders to copy and you must also spend time every day to verify that the copied traders are generating the expected profits.

    A strategy to minimize risk is also needed. Even those who have made a lot in the past, in fact, could make mistakes and therefore generate losses.

    How do you minimize this risk? With the usual financial principle of diversification. In practice, it is always advisable to copy a good number of expert traders instead of limiting to one (or a few).

    In this way, even on the days when some of these professional traders suffer losses (and statistically it will certainly happen), the profits generated by others would cover these losses. It is obvious that if a trader makes a mistake too often it must be eliminated from the list of traders to be copied.

    Read also: Demo Trading Simulation

    Conclusions

    Risk is an important aspect of online trading. It is not possible to trade online avoiding completely market risks. However, this type of risk must be managed and controlled. The article explains in detail how to do it.

    It is possible, however, to completely eliminate other types of risk, for example those related to scams by operating with serious and safe trading platforms.

    Below, we present a complete list of the best trading platforms:

    Platform: etoro
    Min. Deposit: 200€
    License: Cysec
  • Social Trading (Copy the best)
  • Simple and intuitive
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: xtb
    Min. Deposit: 400€
    License: Cysec
  • Free demo
  • Whatsapp Group
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: iqoption
    Min. Deposit: 10€
    License: Cysec
  • Free demo without limitations
  • Minimum deposit low
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: ubrokers
    Min. Deposit: 250€
    License: Cysec
  • Free Training
  • Zero Commissions
  • ➥ Start
    1star 1star 1star 1star 1star
    Platform: trade
    Min. Deposit: 100€
    License: Cysec
  • Free demo
  • Free course trading
  • ➥ Start
    1star 1star 1star 1star 1star
    75.80% of retail CFD accounts lose money
    Platform: forextb
    Min. Deposit: 250€
    License: Cysec
  • Free trading course
  • Free trading signals
  • ➥ Start
    1star 1star 1star 1star 1star

    Another risk that can be eliminated is that related to ignorance: you cannot trade online without a minimum of basic preparation. Anyone who wants to can download for free this ebook which clearly explains how you can earn with online trading.

    Does Online Trading Have Risks?

    Yes, of course, like all investment activities. It will therefore be important to manage the risk and minimize it.

    How can risk be managed?

    Relying on Certified Platforms, using tools such as Stop Loss and diversifying investments.

    What are the riskiest assets?

    The concept of risk, in this case, is closely linked to volatility. For this reason, a volatile asset such as that of cryptocurrencies can be considered risky.

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