The world of finances an exciting place where investors and traders alike risk their capital, effort, and wits to get at the opportunity of ultimately profiting. For some, trading and investing has been a way of life. They have experienced the lowest of the lows and reached the highest of the highs. They have endured the volatility of the market, the unpredictability of economic events, and the instability of different trades. An experienced investor has waved through the different tides and times. This gives them more understanding and more credibility to take on bigger risk. However, for first time traders, they have a lot to endure before being able to do the following:
1) Using Leverage
As a beginner trader, it is really tempting to leverage your money to maximize potential profit. However, the catch is, you are also maximizing the potential loss. There are other platforms wherein you may control the leverage through market orders as in forex and options. But the truth is, being able to effectively take control of margins and leverage along with mastering the specific market orders to benefit you are skills that can only be honed through experience and thorough research.
2) Chasing the Trend
One of the common mindsets of new investors is that they will strike gold. They will invest in this new and upcoming company which will then skyrocket to fame, making them an overnight millionaire. But the truth is, investment and trading is not a luck game. Small companies go bankrupt easier while stocks exchange hands continuously. It is all about strategizing and hard work. So if you are new to the game, choose your career path wisely.
3) Going into Penny Stocks
Another thing that is not recommended for first time traders are investing penny stocks or cent stocks. These are stocks that cost, as their name implies, pennies and cents. The Securities and Exchange Commission officially define them as stocks whose price are below $5 per share and is not listed on any national exchange. Although it seems logical for beginners, especially those who have limited capital, to start small with penny stocks, it is not at recommended. The appeal of penny stocks lies in its size and profitability is easily offset by its high risk volatility. Besides that, the resources for penny stocks movement are very limited. This is why penny stocks investments are to be saved for later when the beginner trader has learned to take on risks.
The above-mentioned are just some of the things that we recommend for first-time traders to avoid. To have a good, stable start, it’s best to begin small and only take the risk you can afford. Keep on trading and in time, you will be able to hone your skills and judgment. The mentioned stocks are in no way discouraged to you but only to new traders. When you are ready go ahead and give them a try.