Fred Razak, chief trading strategist at CMTrading, has been trading on the financial markets for well over 20 years. Here he shares insight for budding traders on what it means to be a well-informed trader.
Trading has changed considerably over recent decades. Many of us have seen classic movies like 1987s Wall Street, and more recently, The Wolf of Wall Street, depicting the world of trading as a glamourous, high-flying profession in the cutthroat stockbroking industry. The truth in our current reality, however, is that anyone can get into financial trading if they have an internet connection and the knowledge to make it work.
That is not to say that everyone who tries it will make millions overnight, though. Even though trading is more accessible than ever, it requires knowledge and skill. And in Fred Razak's experience, these are the top 10 must-haves for anyone considering entering the online trading arena.
Education
Trading is like riding a bicycle. You need to start with training wheels before you can hit the bicycle lane and keep up with more experienced cyclists. Similarly, before you spend a cent on trading, find a broker that is willing and able to help you learn the necessary trading techniques before you take to the road.
“An informed trader is one that has accumulated enough knowledge about the financial markets and has developed the confidence to trade over time, knowing the risk parameters and understanding trading methodologies – and their limitations.”
Informed strategy
“Strategy is a direct product of education. A structured strategy informs the volume you trade – whether you trade big or small, hedge your bets or diversify. A trading strategy takes all the markets influencing factors into account so you know when to push the gas and when to slow down. And it is informed by an overall goal.”
A reliable trading platform
“Sadly, there are a lot of scams out there. Avoid them by doing solid research. Start by checking if the broker you have chosen is registered with a regulator. In South Africa, South Africa‘s Financial Sector Conduct Authority (FSCA) or the United Kingdom’s Financial Conduct Authority (FCA) are ones to look out for.”
Copy the experts
“Trading can be an art. But there can also be an element of plagiarism involved. Copycat trading entails following and copying other traders with successful track records. And this method has proved to be successful for many beginners.”
Manage your risk
Risk should always be taken very seriously. There is a disclaimer at the bottom of our website that states, ‘Trading in CFDs carries a high level of risk; thus may not be appropriate for all investors.’
“There is a very valid reason for this. Any professional broker will caution you not to overextend yourself when you invest in trading. That said, however, driving a car is also risky. But it becomes less dangerous when you wear a seatbelt. Exercise the same control with the investment you put into trading. Don‘t spend money you can’t afford to lose. That is the equivalent of a seatbelt in trading.”
Think long-term
“There is no such thing as ‘easy money’, unless you are a trust fund baby or win the lottery. And there is nothing wrong with starting on small trades until you find your feet. Err on the side of caution with your big-picture goal in mind. Trading is a learning experience and taking it slow – at least at first – is a great way to start.”
Pay attention to the news
Every financial market is affected by environmental factors. Times of great volatility, for example – like our current context of Russias invasion of Ukraine – can be both very risky for investors and potentially very lucrative.
“Paying attention to the news, trading signals, the rand dollar exchange rate and socio-economic factors influencing the global economy can help you manage your risk and invest strategically.”
Choose your weapon
The term ‘weapon’ is, of course, used metaphorically here. There are so many online trading techniques and so many different things to trade. Forex trading, CFD trading, stock trading and Bitcoin trading are all options. They are also all potentially lucrative.
“Choose one that resonates with you and ensure that the proper risk parameters are in place. Ask your broker to help you make the right decision.”
Plan ahead
Any financial professional will tell you that savings are critical. No matter how successful you have been as a trader, rainy days do happen. Emergencies arise and life throws us curveballs.
“If you win a trade, consider putting some of the money you‘ve made away – in a high-interest account, diversified investment portfolio or a sound policy – rather than throwing it all straight back into the pot. It’s never a bad idea to consult a reliable investment broker on what your options are.”
Stick to what you know
“There are many ways to trade. You can do it on your desktop or mobile device. And there are several apps and platforms to choose from when you start your trading journey. It may all seem a bit overwhelming at first glance. But personal aptitude and preferences differ from person-to-person. You will find the right fit. But getting advice from an experienced broker is always the best place to begin.”