While interest rates might be picking up, savings accounts are still not providing the sorts of results that make your money work harder. For some, that means putting their hard-earned cash into investments but others want to see swifter returns.
While investors typically put away their money into an asset, ride out short term fluctuations and wait to reap the long term rewards, traders have a shorter term focus, profiting from rises and falls in the short term.
If trading sounds more suited to your financial goals and circumstances, how do you begin? Note: we don't think that trading is for most people. However, we're also not your mother. If you want to trade stocks and other financial products, at least know the risks.
Set A Budget And Understand The Risk
Before you commit to a single investment you need to properly assess your financial circumstances. How much money do you actually have available for trading? You need to establish a fund for this and think about a ‘worst case scenario’ so that you’re comfortable with the risk – and potential losses – that could come from your activity.
Many traders operate using the ‘1% percent risk rule’ in which they never risk more than 1% of their account on a single trade.
Furthermore, you should probably limit your trading to less than 5% of your portfolio. Plus, ensuring that you have an emergency fund that's fully funded, and retirement accounts that are on track.
Establish A Target
Once you know how much you have to trade with – and are happy that you can afford the risk – it’s time to think about some targets.
Do you need to work towards a goal so that you can afford a big ticket purchase? Or do you just have a goal in mind that you’d like to grow your spending power by?
If you know what you are aiming for, then you can work out what it’ll take to get there. It's essential to have a target when you're getting started.
Understand The Opportunity
Then it’s time to understand the nature of the opportunity open to you, both in terms of the type of trades you might wish to make and the markets you might wish to trade in.
There are plenty of freely available resources online, from a forex trading course to get you up to speed in the lucrative currency markets to whole websites dedicated to helping you to decipher the language of the markets and the theory behind the key techniques that you need to follow to succeed. Be as thorough with your research – and specific in your focus – as possible. The devil is in the detail.
Get Up To Speed
The markets rarely sit still, especially given that a host of factors from different time zones can all impact upon the price of assets and affect your trading decisions.
You need to spend time getting up to speed on the latest trends by becoming a voracious consumer of finance news. Use reputable sources – the likes of Bloomberg, City AM, CBS MoneyWatch, Daily FX, the Financial Times – and make sure it becomes part of your daily routine to check in on the coverage do that you’ve got your finger on the pulse.
Demo Before You Go
No matter how confident you are, it also makes sense to practice before you get going for real. When searching out an online broker, it makes sense to find a provider that offers you the chance to set up a demo account. That way you can test your theories without any risk.
Once you’ve had a demo, done your homework on the market and types of trade you want to make and set your budget and targets then it’s time to put all of this prep to the test and begin trading for real.
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