Whenever talking about financial trading statistics are grim. One out of 10 traders now lose money as a trade is made. We are faced with a natural uncertainty whenever trading is done. Risk is high and investing money without taking this into account can easily lead to huge problems. Too many believe that trading will offer huge returns but Marc Leder highlights that in the long run, most traders actually lose money or make very little profit.
The experienced trader is always looking at strategies to use in order to make money. At the same time, those that are experienced also focus on identifying how money can be lost. This helps them to be properly prepared. Based on the experience of the traders, here are some common reasons why traders tend to lose money.
Trading While Learning
Most of the traders that lost money did so because they started to trade without having proper professional trading. If you just have some basic information and you do invest your money in anything, there is a pretty good possibility that you will lose cash. This is actually the biggest possible possibility. The idea is practically to learn trading while you also learn how markets work. Things should be the other way around. You need to first learn how financial markets work and then start to trade or even learn how to use financial instruments when trading.
Improper Risk Management
You should always understand how risky a specific trade is, together with the risk category of the investment. This is really important in helping a trader to avoid loses. Risk assessment should be conducted when analyzing every single considered investment opportunity. The trader manages to determine ledger that is hold against investment, together with whether or not it is a good idea to place wagers with the use of leverage. If risk assessment is not done, traders might end up choosing a portfolio with a really high risk. When leverage is not properly chosen, a lot of money can be lost.
Lack Of Money Management Practices
If you do not have strong money management skills, you end up holding stakes for way too long or you release them way too fast. This means that even if you make a profit, in the long run you lose money since you make less than what is possible. You practically need to be sure that you properly manage your bankroll in a way that no matter what happens, you make money on the long run. Few beginner traders understand how important money management is when trading.
Not Taking Transaction Costs Into Account
Similar to any investment you will ever make, as you trade you have to deal with some operational costs. These need to be considered if you are interested in making a profit. Traders can end up losing money even if they think they have a positive trading return as they do not take costs into account. Adjusted transaction costs that have to be deducted include commissions, utility bills, taxes and more. Even the time that you spend conducting activities that are trade-related need to be factored in.