Trade Wisely - Understanding Trading Risks
FX and CFDs are complex leveraged products which are traded on margin. FX and CFDs carry a high level of risk since leverage can work both to your advantage and disadvantage. They are derivative financial instruments that allow investors/traders to speculate on the changing values of an asset without owning that asset. Due to their complexity and volatility, trading FX and CFDs carries a high level of risk and therefore, may not be suitable for all investors because you may lose some or all of your invested/earned capital. Ensure that you fully understand the risks involved before deciding to trade.
Understanding the risks involved and learning about the markets does not guarantee avoidance of losses but it may help you make informed decisions and manage your invested funds and trading risks more effectively. If you are a first-time trader or investor, visit our page where you can register for a demo account and learn the basics. With a demo account, which is free and includes a virtual balance you can practice trading or test your strategies in a risk-free and safe environment.
The most effective risk management tool is knowledge, STO’s educational materials will walk you through multiple solutions, depending on your investment strategy. Novice traders frequently encounter various challenges when starting out their trading careers and STO’s educational courses will help them both understand and overcome these.
Leverage: use it to your advantage
Trading with the use of leverage enables you to control positions that exceed the value of your initial investment. For example: if you deposited $2,000 into your account, trading with a 1:500 leverage would allow you the purchase power of $1,000,000.
This would maximize your profits when the market moves in your favour. However, if the market doesn’t move in your favour and moves in an unfavourable direction, leverage would increase your losses.
In order to familiarize yourself with the use of leverage in trading, you can open a risk free demo account to find out the leverage that best suits your strategy.
Effective risk management techniques for traders
Risk management is essential but often overlooked precondition to successful trading. If proper risk management isn’t implemented, a trader might lose all the lifetime profits he or she has generated in just one or two bad trades.
Here is what you can do to ensure that you manage risk successfully:
- Only invest amounts you are comfortable and able to lose; in case the instruments you invested in, move in a non-beneficial way.
- Investing in multiple asset classes may spread your risk. For example, some traders might invest in Futures Contracts in order to counter (but not completely negate) risk from other open positions they invested in.
- Using Stop Loss and Take Profit orders can minimize the chances of losses (but again not completely negate them).
- Implement trading strategies. Try not to trade based on emotion and make sure that you are aware of the current economic indicators and socio-political events that affect the price of specific assets.
Trade Online with STO
Learn how to trade professionally with a diverse range of educational material. We offer video tutorials, live webinars, technical analysis and up to date market news.
STO aims to provide an optimum trading environment to ensure maximum performance while offering MT4 and AFX Fast trading platforms to choose from that best suits your needs and take your trading to the next level.