Why Should You Protect Your Trading Account with Balance?
So you have decided that you want to take the first step into online commodity trading, forex trading, stocks and shares trading, etc. You are ready to open your trading account and have your initial capital investment ready. But have you considered the very important question of how to protect your trading account?
Don’t Set Yourself up to Fail
New traders often start out full of enthusiasm and confidence that they are going to make a healthy profit. Sadly all too often they fail to achieve this, leading them to conclude that ‘trading is too hard’ and ending their trading career before it really got going in the first place. The mistake they make is to invest all of their capital in the early days and have nothing left in reserve to keep them going once that is wiped out.
Balance is the Best form of Protection
The best advice that newcomers to trading can take from the common mistake described above, is to only ever invest what you can afford to lose. Holding back some funds in your account for when you spot a good opportunity, or to keep you going in times of trouble, can only be beneficial in the long run. Investing everything immediately is a bad idea for sure. If you do not have funds in your account, you can not trade anything new. Imagine any event that requires a ticket for entry. In order to participate in that event, you need to buy a ticket.
No money = no ticket.
This example can be adapted to the stocks and shares market too.
No funds = no chance to trade.
You need money there in order to do business. Use it sparingly and replenish it when you get profit.
Play Safe Until you Find your Feet
Remember that the aim of the game is to make money. Having everything tied up in shares is not particularly useful. Your trades should be used to generate money. The more money you have in your account, the bigger trades you will be able to go for, without having to worry too much about loss. Risk is always a factor in any form of trading, but your balance helps you to run that risk more easily. By doing so you can enjoy less risky trading with money management in place. If you have more, you can afford to lose more. You should never have to compromise your lifestyle and day-to-day living because your investments are in a mess. You should manage them so that they take care of themselves, using only your disposable income. Never take loans in order to invest. It is never worth the risk.
Build up Slowly and Grow your Balance
Lets say for example, you begin your trading career with 10 lakh rupees of balance. You immediately buy 10 lakh worth of stocks and shares and now have zero balance. Not only is ALL your money at risk, but you don’t even have any spare to use when a particularly attractive trading opportunity comes your way.
The alternative and proper way to operate could be to invest part of your initial 10 lakhs (how much exactly will depend on your trading strategy and goals which should be planned carefully with your broker or advisor and adhered to carefully) beginning with small trades for small profits. This will give you a taste of the market so you can get used to the act of trading.
Playing with small amounts at first ensures that you will not be wiped out in the event that you make a few bad trades. Remember that everyone makes bad trades at some time or another. Nobody wins consistently. Going forward, your small trades should generate small profits which all add up to a substantial amount. Lets say you are able to generate a further 2 lakh rupees in 2 years, you now have 2 lakh rupees extra to play with, without needing to touch that amount of the initial capital that you held back in your account.
Let that be there, safe for use when you become more experienced, more sure of your self and more used to the way the markets work. You could even afford to lose the 2 lakh rupees and be no worse off than where you started. After all, that is money that you never had to begin with. If you lose money from your initial capital however, you are losing your hard-earned money and becoming worse off overall.
Do not Underestimate the Power of an Investment Plan
Those who create robust long-term plans for themselves and stick to them meticulously almost certainly perform better than their counterparts who invest randomly and sporadically on a whim. If you don’t have a plan in place, you need one, plain and simple. If you require help in creating a plan for yourself, you can rely on the expert assistance of the staff at GWC INDIA. Get the best risk management for active traders. They are waiting on the other end of the phone line to help you maximise your potential and get the best returns on investment. Call today on +91 80122 78000 and discover why GWC INDIA are the top online broker when it comes to value. Don’t forget to ask about their extra-low brokerage charges and bonus special features that they make available to every GWC INDIA customer.