Opening an investment in one of the financial markets can be a great way to meet your financial goals more effectively. The stock market prevails as one of the most popular among traders, providing individuals with the opportunity to purchase shares of some of the world’s most successful companies — owning a minute portion of that business.
The stock market is highly volatile, and this provides investors with opportune conditions to make gains on their investments. However, since prices can change significantly within a short period of time, this also puts you at risk of making losses.
To minimize this risk, there is a multitude of risk management tools that you can apply when trading on an online stock trading platform.
In this article, we’ll take a look at the steps that you can take to minimize the losses that you may incur in the stock market.
Keep reading as we reveal all.
Stop-loss orders
A stop-loss order is a risk management device that will open or close a trade for you, once the stock has reached a specified price point. This is put in place to limit the losses which you can encounter when trading in a high-risk market.
For example, if you set a stop loss at a point that is 5% lower than the purchase price, your losses will be limited to 5%. Using an online trading platform, you can easily employ this tool and decide upon a divisive point at which to cut your losses.
Use an economic calendar
The stock market’s volatility can be driven by an array of factors, and many of these are periodic events plotted in an economic calendar. You can usually find an economic calendar online, and gain access to all of the dates that take place in the year, which could affect your position.
These include key data releases, like the Non-Farm Payrolls and Federal Open Market Committee (FOMC) meetings. Since the health of the world’s economies — particularly the US — can affect the stock market, an economic calendar will enable you to plan ahead for any surprises that could affect your position.
Identify a trend
By studying a trend in this way, you’ll have greater trading confidence in the point at which you enter, as it is a well-informed decision, backed up by evidence that suggests risk levels are low.
Diversify your portfolio
A popular technique to managing risk is to create a diverse trading portfolio. This means that you’ll open positions across different markets, for example, stocks and forex, in an attempt to hedge one investment against another.
This is helpful since different markets will outperform others during periods of economic uncertainty, and therefore, you can make up any losses you may incur in one market, across your other trades.
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Although losses are inevitable when trading in the stock market, by following these steps, you can minimize the risk involved and the extent of them. However, before investing, you should undertake thorough research, understanding all of the factors that can drive prices, to best position yourself to take advantage of these movements.
Online trading platforms enable you to speculate on some of the most lucrative stocks in the market, but by managing risk, and applying a combination of fundamental and technical analysis, you can maximize the success of your trades in the stock market.
