Throughout the course of 2020, the Covid-19 pandemic ravaged the bulk of retail businesses. The lockdowns and social distancing measures have led to hardship on the high street. Whether it is bars and restaurants or clothing chains, customer-facing bricks-and-mortar businesses have been suffering.
However, this has not been the case for the retail training industry which has been reporting record volumes and fresh sign-ups almost across the board, fueled by the pandemic. Several factors have played a role in the surge in retail trading. For one, a lot of people have found themselves at home, often with reduced fixed expenses and some extra time on their hands to research and explore the world of trading. Also, back in March when all markets took a hammering, this opened up dip-buying opportunities for those sitting on the sidelines. Whether it was stocks, commodities or crypto, the coronavirus-inspired sell-off allowed new traders to enter markets at rates they would never have had access to, if it were not for the pandemic. In fact, many analysts pointed to the bounce in US equities we saw in April as being a largely retail-led phenomenon.
The global forex broker HYCM has shared three trading best practices to help new traders invest responsibly throughout these strange times.
1. Leverage is not what it seems
Leverage is often presented as the right option for a small account balance, allowing command of larger positions than a small account would ordinarily allow. However, leverage is also one of the main reasons that the majority of retail traders fail within their first year of trading. Treating leverage as free money is like taking out a huge mortgage on a house you’ll never be able to afford. It’s a false economy, and in due course, you’ll find yourself out on the street again.
For professionals, leverage is reserved for certain high conviction trades. It’s used sparingly, only in certain situations, and never at the ratios that retail traders routinely use it. If you’ve just started your trading career and are using the maximum amount of leverage your broker offers you, then you’re begging for trouble. HYCM’s advice would be to not use it at all as a beginner and to use the minimum leverage possible when you know what you’re doing and have developed a solid strategy that takes into account risk management.
2. Learn to Separate Church and State
You need to learn how to tell between your personal finances, as in what you require to meet your needs and commitments on a month-to-month basis, and the surplus capital you have made available for trading. In retail trading, especially among smaller investors with less disposable income, the two often become blurred. This too, like using too much leverage, is a recipe for disaster. If you’re putting money that’s earmarked for other purposes into your trading account, hoping to grow it by the end of the month, you’re setting yourself up for a fall.
You’re also placing pressure on yourself as a trader and increasing the possibility that you’ll make unsound trading decisions based more on your financial needs than on what the market is really telling you. Again, this is another issue that most institutional traders do not suffer from, as they tend to be far better capitalised and have been taught that it’s not a good idea to mix their personal finances with their trading accounts.
3. Learn to make plans and stick to them
Even though the high risk, high reward style can seem attractive to newcomers, that this approach is functionally indistinguishable from gambling. Trading is not gambling. Sure, you’re still dealing with odds, uncertainty and the possibility of being rewarded if your forecasts prove to be correct; but there’s a lot more to the business of trading than just betting the house on black.
One of the hallmarks that distinguish a trader from a gambler is the ability to develop a strategy for opening and closing positions on your chosen instruments or asset classes, and the ability to stick to the plan in the heat of battle, so to speak. Many a strategy has come unglued when an undisciplined trader chooses not to observe a sell signal due to greed or avoids cutting their losses in hopes that the market will miraculously reverse. It may seem obvious, but sticking to the plan is one of the hardest things to do in trading. You can actually chart your development as a trader by how disciplined and unemotional you learn to become when your strategy generates a buy or sell signal. Focus on learning how to do this, rather than overriding your strategy by making decisions on the fly.
With over 40 years of group experience in the world of finance, HYCM has focused on delivering reputable and reliable services to institutional and retail clients. This involves ensuring they know the risks involved in trading the markets, are equipped with best practices from the outset, and are provided education and analysis to help them develop on their respective journeys.
HYCM aims to give new clients the support they need so trading becomes a lifelong process of growth, rather than a short-term fad. The broker also runs educational webinars and workshops on the HYCM website.
Disclaimer: The content of this article is sponsored and does not represent the opinions of LeapRate
