However, a very low risk trade will not get you a good enough reward and a high risk trade will increase the chances of losses. Therefore, you have to determine your risk tolerance and take measures to reduce your risk to that level.
Here are some ways in which you can lower your risk without compromising on your returns when trading online.
Diversify
Investing all your money on a single trade is the biggest mistake most investors make. Even if you invest in a winning trade, you never know how the market will react to a future event. If something happens that impacts the financial market, your winning trade may take a complete 180 degree turn and backfire on you.
Therefore, it is very important that you invest in a variety of industries like metal, energy, technology, etc. Diversification will help you spread your risks and reduce your chances of facing a loss. When making a trade plan, adopt diversification strategies. These will allow you to gain consistent rewards over time and lower your overall risk of investment.
Have a Flexible Trading Approach
It is extremely important to have a plan and to stick with it. However, the trading approach you employ in your current plan might not be suitable in some market situations. That is why it is recommended to have a backup plan to fall back on.
Be open to all kinds of situations. Closely monitor the market conditions with the help of tools offered by online trading platforms like Trader Pro and MetaTrader4. ETX Capital offers online traders a variety of trading platforms to choose from.
Once you are completely aware of the trends and have evaluated the current situation well enough to make a decision, be flexible with your trading approaches and see which ones would suit the current market conditions most appropriately. This will enhance your prospects of earning greater rewards and substantially lower your risks.
Record Keeping
This is an important task for online traders. You must have a detailed record of all your trades. These can act like references later on and help you make future trade decisions. Your past records will allow you to evaluate your trading performance and indicate where you went wrong and which decisions proved to be lucrative. Learning from your old mistakes is the best way to lower risk and boost rewards.
However, as the financial markets are usually volatile, you cannot really base your decisions on past trade transactions. You can only take guidance from your past performance and then apply your knowledge and experience while trading in the future.
In the end, it is important to know that all investments have risks. You can only attempt to lower your risk, but there is no guaranteed formula to completely avoid risks while trading online. Therefore, try to trade as much as your risk tolerance allows you to maintain a healthy financial position.
