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  • Talitha Taslim
  • Posted Articles: 13
  • Last Posted: 2017-08-03 08:59:33
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For First Time Traders...

2015-08-14 02:00:57

Novice traders have plenty of choices when it comes to choosing the markets and entering their first positions. But bad investment decisions can dent a portfolio and capital. That is why financial advisors strongly advice to do research before choosing where to invest. When looking for investment instruments, avoid options because it require advanced skills. Although forex markets are appealing, with low leverage and low account size requirements, this remains a perilous choice.


Now, where should new traders begin? Equities markets due to opportunities it can present. One can start trading by opening an account with $500 minimum balance at several brokers. However, the pattern day trading rule takes effect for accounts less than $25,000, meaning positions can be opened and closed within the same session only four times a week. Otherwise, the account is flagged and placed on 90-day restrictions.


However, this rule creates risk management hindrances, making decision making more difficult. It is normal to make poor orders and can be eased by implementing quick exits. But breaking the rule makes it harder to exit a losing trade when necessary. As a result, the investor’s confidence dwindles.


What if they downscale the frequency of trading? Start anew every Monday and concentrate on total executions until Friday’s close. But doing such will affect their learning curve because they have to refine strategies often, benefiting more on high frequency and less on small size to lower risk.


How about index futures? Opening a futures account ranges from $5,000 to $10,000, and a trader can hold an overnight position for less than $6,000 a contract. Futures carry higher risk because the minimum set by the contract prohibits you from reducing exposure in the same manner as purchasing small equity shares.


A minimum-sized position with good technicals could be in the hole unless stop losses are in place. Having said that, most new traders will rule out longer term positions as they might not be able to deal with the monetary or psychological outcome of the downfall.


For first time traders… invest in the equities first. Considering majority of novice traders are young, you can definitely afford to absorb more risks as they have more time to recuperate the losses. Then, try to invest in other markets such as forex, futures, and options.