Trading is an exciting and stimulating way to spend your time, and when you know what you’re doing, it can also be lucrative. It’s also quite a complex area however, and there are many ways you can get into trouble, as well as scammers waiting to take advantage of you. Rushing straight into it is never a good idea. Take a bit of time to familiarise yourself with the basics and you’ll be much more likely to make a success of investing.

Be prepared

If you’re interested in day trading, it’s folly to think that you can make a success of it using substandard equipment. The thing you will need to invest in upfront is reliable computer hardware. The most profitable time to trade is when assets are about to turn and at this point a split second can make the difference between profit and loss so the last thing you need is an overloaded computer or a dodgy internet connection slowing you down at the crucial moment. You’ll also need to be able to do research into different assets or developing situations at the same time as keeping your trading window open and real time trading data flowing in.

Types of trade

In addition to getting the right equipment, you’ll need to think about what your aims are where trading is concerned. Types of trade that have the potential to pay off more quickly involve a higher level of risk. If your aim is to create a nest egg for retirement, you’re best advised to invest in slow-maturing, comparatively secure trades like stocks and bonds, spreading them across different sectors, and perhaps even different countries, to reduce your vulnerability to market fluctuations. If you’re prepared to tolerate more risk and your priority is to generate an income more quickly, you should be looking at day trading, forex and CFDs. For most investors, the ideal portfolio is a mix of asset types, thereby balancing out risk. Whatever you choose to invest in, it’s important to make sure you understand it in depth, so look for CFD trading tips or stock trading tips rather than just advice on the broader state of the markets. Succeeding with each asset type requires a subtly different set of skills.

Another Important aspect to consider when starting off is in deciding the correct business structure, whether you wish to be a sole trader or a company. Its important you research thoroughly the pros and cons of a limited company and accountancy firms in London such as Pearl Accountants have reported businesses who do their business structure research before starting off are more likely to do well in their first year of trading.

Common mistakes

Success in trading isn’t just about the strategy you use, it’s also about your psychological state. Most mistakes happen because people get too sentimental over falling assets, get too excited over rising ones, or fail to understand their own cognitive biases. We all have biases like this – they’re part of our genetic heritage and, for the most part, are useful in the right context. One of these is a tendency to see patterns in everything, even when there are none to be found. In trading this is dangerous because it tempts people to believe that they have uncovered secret systems which, when adhered to, will always pay off. Throughout the history of trading this has been happening, yet there is not a shred of evidence that anybody has ever uncovered such a system. There is lots of evidence of people losing money – in one case as much as €4.9bn – because they believed they had.

Avoiding scams

Even when you exercise good discipline and keep your own behaviour in check, you’ll need to watch out for what other people are doing. There are a lot of scams out there but most of them can be avoided if you use your common sense and don’t get too greedy. The first and most important thing is to find a trustworthy broker. It’s safest to stick with one of the larger ones with an established reputation. Use reviews in the established trade press to guide you – don’t rely on user reviews which can easily be faked. Always check the registration details of any organisation you deal with and make sure that it’s properly regulated. When it comes to individuals, don’t trust strangers who approach you, no matter how tempting the deals they offer. Use trading forums – they can be targeted by scammers but they’re also a good place to keep up to date with warnings.

Most of the risks involved in trading can be avoided by keeping a cool head and not being too trusting. that doesn’t mean you won’t lose money – anybody can make bad decisions or simply be unlucky – but it won’t just slip through your fingers. Make use of the educational resources provided by brokers, use demo accounts to try out new strategies and remember that no matter how long your trading career lasts, there will always be new things to learn.