As more financial transactions are carried out through the internet, the quantity of online traders has increased. According to retail forex broker Admiral Markets UK, this number will reach 1 billion by 2025.
Online trading offers excellent potential for investors who wish to make their money work harder by giving them access to 24-hour markets and numerous trading opportunities. However, many newb traders fall prey to overtrading, leading to significant losses.
Every year, retail traders in Asia lose billions of dollars to overtrading. Overtrading is the number one mistake committed by CFD traders because it involves holding positions longer than intended. This error decreases trader profitability and puts them at risk of significant losses.
Overtrading happens when a trader opens too many positions per currency pair, which leads them to open trades that will most likely be closed at a loss with time passing by due to changes in price movements or just lack of interest. This is an excellent way for new traders to burn through their cash in a very short time.
With the experience comes understanding and knowledge of how things work within the CFD market. There will be times when it seems like easy money can be made, but many forget about Even Balance, so as time pass by, they lose more than what they initially started with.
When this happens, they tend to look at ways to recover from such so as not to go into even more debts leading them nowhere or simply just quitting for good which is a significant loss indeed.
The following are three ways new traders can prevent overtrading:
Have A Trading Plan
New traders should have a trading plan, and this incorporates having a clear goal and the strategy that will be used to achieve that goal. Many new traders open several positions because they follow their emotions, leading them to take more risks than usual. Once the trading plan is set, it should be followed strictly and not strayed away due to fear or greed.
Fair Market Spread
Another mistake made by many traders is that they do not bother checking the market spread of the broker they are using. Most online brokers offer fair spreads meaning that if a trader opens ten standard lots at $1 each, they will only get charged around $10 for entry and exit fees combined regardless of the amount they invest. Therefore, when traders open several standard lots to get higher returns, this adds stress, especially if their broker has wider spreads.
Set Take-Profit At The Right Time
Setting your take-profit is one of the most crucial aspects that traders should consider to prevent overtrading. Take-profit is usually calculated in pips, and it is always advisable for traders to set take-profit when their trades are already in profits. This prevents them from losing positions which can lead them nowhere fast.
If you find yourself struggling to keep a lid on your total position count, consider using a trading tool that automatically closes old trades when new ones are opened. This technique will help you avoid overtrading by preventing older open positions from negatively impacting your portfolio.
Conclusion
Overtrading has become very rampant these days, so many new traders fall prey to it without knowing what they are doing; however, if possible steps are taken, this will help the newbie trader immensely so as not to suffer more losses than gains. It is never too late to learn something new after all, even though there will be those who say it is.
New traders should take advantage of the many free resources available to them, such as watch lists, trading signals and also educational material which they can use to learn more about trading and how things work so as not to suffer from overtrading. New traders interested in CFD trading are advised to use an experienced and reputable online broker from Saxo Bank.
