Why Does Retail Traders Lose Money in online trading?
Over the years, the phenomena of online trading and the social media revolution have converged to give us social trading. With the world of financial information and analysis at our fingertips, it has made it easier for us to invest in Forex and stocks and the chance to yield high rates of return on our investment.
However, some people still lose money. Is it because of some inherent flaws in the social trading networks? Not quite.
Granted, you’re constantly in touch with financial information from all over the world – information that can help you make an educated decision. However, like any other trading opportunity, the rules of smart investment apply here as well.
And if you are a new investor, you need to observe those rules. You need to know what to do and, more importantly, what to avoid, when it comes to social trading. Don’t know where to start? Don’t worry, we’ve got you covered!
Here are the top three reasons people lose money with social trading:
1. Having unreasonable expectations
One of the reasons why a lot of investors are attracted to social trading is the chance to make huge gains with small investments. While it’s not unreasonable to expect that you may make such gains, it wouldn’t be wise to assume that you will, with every investment.
These unreasonable expectations can easily cloud your judgment and lead you into a trading trap in which you’re sure to lose money. If you risk a lot or close down trades prematurely, even the might of financial social media may not be enough to save you.
2. Not diversifying your investments
If there’s one way you can reach your long-term financial goals while also minimizing the risks, it is through diversification. And conversely, if there’s a surefire way of losing all your investments in an instant, it’s putting all your eggs in one basket and betting it all on a single huge investment.
One of the biggest advantages of social trading is the ability to follow different successful traders. It is time to divide your investments among different traders and stand to gain some, even if you lose some.
3. Poor risk management
Social trading is like any other trading opportunity. The prospects for rewards and risks come in equal measure. And if you’re coming for the rewards, you need to be prepared for the risks. Those who are not, stand to lose quite a lot.
This is why you need to be able to manage your risks effectively. From limiting the maximum capital that a trader could lose, to knowing how much to invest per trader, you need to be aware of all the tricks of the trade if you want to succeed.
AlpsSocial offers its users the opportunity to connect with traders from all over the world and shares more methods of maximizing gains and preventing losses.