To say that there is an investment field of any kind that is completely safe and free of risks is beyond reason and contradicts the simplest rules of logic.
Accordingly, it must be acknowledged that the risks of online trading are a reality that cannot be overlooked or denied.
The positive thing, however, is that managing and controlling those risks is readily available and easy to achieve.
Here are the most prominent of those risks and the best ways to manage and deal with them safely and effectively.
What are the risks of online trading and how do you deal with them?
The risks of trading via digital platforms take many forms, which can be divided in terms of type into three main categories, as follows:
- Risks associated with trading and market movements.
- Technical and technological risks.
- Online fraud risks.
Now we come to explain these risks in detail:
1. The most important risks associated with trading and market movements
The potential risks associated with the mechanisms of trading deals and the trends of market movement represent the most dangerous and influential pattern among the risks of online trading.
Here are its most prominent manifestations and the most effective ways to hedge against it.
Losing money more than what was deposited in your account
The main risk of online trading is the so-called “negative balance”.
This is referred to when the loss exceeds the amount deposited in your live trading account.
This is achieved as a result of trading through leverage, as this feature doubles the purchasing value of the basic deposit amount to enable the trader to open positions of larger sizes.
Accordingly, the potential profits are doubled through the transactions conducted, but at the same time the losses are also doubled if they occur.
This type of digital trading risk can be managed in one of two ways:
- Stop Loss: From the beginning, the trader can activate the “Stop Loss” feature, which is a pre-order that guarantees that your trades will be closed automatically when the loss reaches a certain limit, ensuring that you are protected from exposure to a negative balance.
- Avoid the leverage: Some brokers offer the option of trading without leverage, although this option reduces the potential profits relatively, but at the same time it protects you from the risks that may result from the market moving in opposite directions from the expected.
Sudden loss of realized profits
The mechanism of trading financial assets via the Internet of various types, such as trading digital currencies, forex trading, stocks, and others, is based on only one basic pillar, which is to make profit through the differences resulting from the constant movement in their prices.
However, one of the risks of online trading and trading in general is that there is always the possibility of a sudden change in market trends.
Which may cause the loss of profits actually made through open trades.
There is a set of precautionary measures or precautions that a trader can take to protect the profits achieved, which can be summarized in the following points:
- Monitor market movements on an ongoing basis.
- Proficiency with basic and technical analysis tools.
- Activate the automatic profit taking feature, which closes your positions when they reach a certain limit.
The discrepancy between estimated and actual costs
Each trader sets a certain level - or price - when placing orders to trade a specific financial asset.
But in some cases, the market goes a long way from moving suddenly, or what those with experience in the trading world call “gaps”.
This results in the activation of the orders placed by him at higher prices (the execution price).
This results in a discrepancy between the estimated price that the trader originally expected and the actual price at which the deal was concluded.
This may sometimes reflect negatively on the value and size of the final profits.
The trader can tighten protection against the execution spreads quite easily.
This is done by activating the Guaranteed Stop feature that stops your orders when unfamiliar or expected gaps in market trends occur.
The major trading firms give their clients the ability to set these stops for free, while they are charged a low fee for the service only if they are used.
Unexpected closing of positions (loss of margin)
Those with experience in the world of online trading recommend diversity and multiplicity in making deals.
As this in itself is one of the ways to hedge against the risks of online trading and at the same time increases the chances of making successful and profitable trades.
But you should note here that keeping trades open requires having a minimum amount of money in your trading account, which is called "margin".
Therefore, your loss of funds may result in your positions being closed out, causing further losses.
Avoiding this problem does not require any kind of preset, it just requires more experience and acumen.
Where the trader has to follow his current balances while making deals and monitor their movements up or down.
Only then can he add more amounts to his account to meet the margin requirements.
In this regard, it is recommended that:
- Trading via platforms that facilitate monitoring of balances during trades.
- Choose trading companies with low margin requirements.
- Take care of the balance between the size of the balance and the number of open deals.
2. Technical and technological risks in online trading
There is another type of online trading risk that may cause you to miss out on profiting from price movements.
It also hinders making the right decisions at the right times. This pattern is related to the technical aspects on which the trading process is based from A to Z.
Therefore, experts recommend the necessity of adhering to the following when entering this field:
- Having a good internet to avoid service interruptions or loss of connection while trading.
- Rely on secured Internet networks and avoid using public or shared networks.
- Trading on world-renowned and trustworthy digital platforms.
It is worth noting here that choosing the trading companies that support the distinguished digital platforms is very important.
As these platforms ensure that orders are executed at maximum speed - within a fraction of a second - ensuring that you make the most of any sudden positive change in market movements.
At the same time, it protects you from the risks that may result from its movement in the opposite direction.
3. Risks of trading: online fraud
The spread and prevalence of online trading is naturally accompanied by a large increase in the number of service providers, ie trading companies.
Certainly, not all of these companies are on the same level of quality of services or level of transparency.
Which adds another element to the risks of online trading, which is falling into the trap of fraudulent trading companies or being scammed.
This type of risk can be easily avoided by choosing reliable trading companies from the start.
It is recommended that the accreditations of the selected companies should be examined and in advance that they have obtained one or more licenses from the first-class regulatory bodies, the most prominent of which are:
- MiFID Licensing.
- Licensed by the Cyprus Securities and Exchange Commission (CySEC).
- UK Financial Conduct Commission (FCA) license.
- Licensed by the Swiss Market Supervisory Authority (FINMA).
- Dubai Financial Services Authority (DFSA) license.
- Australian Securities and Investments Commission (ASIC) license.
The most prominent methods of hedging against the risks of online trading
To summarize what was mentioned in the previous paragraphs, the methods of hedging against trading risks can be summarized in a simple set of points, the most prominent of which are as follows:
- Activate the passive movement protection feature.
- Permanent and continuous monitoring of market movements.
- Proficiency in reading charts and using analysis tools.
- Follow up on profits and losses (account balance on the platform).
- Activate the feature of automatic closing of positions at profit and loss.
The elements of protection and security from the risks of online trading
Hedging and managing the risks of online trading begins in a safe manner, even before the actual start of trading.
As this is done since the trade-off between the available trading companies.
This is done by ensuring that they are available to the means and support services that help the trader to take such measures against potential risks, the most prominent of which are the following:
- Find out the size of the margin requirements.
- Choose a broker that adopts an efficient and advanced digital platform.
- Identify the means of analysis available through the broker and their effectiveness.
- Availability of instant alert services during trading.
- Availability of accurate and variable charts to follow the market.
- The value of the fees charged for the benefits and special services provided by the broker.
Is online trading complicated?
Online trading is completely and completely away from complexity, but at the same time it does not depend on coincidences and strokes of luck as some imagine.
However, trades and their risks are managed based on informational foundations represented in reading charts and the results of various analysis tools through which it is possible to identify market trends and future price movements of a particular financial asset.
How are trading company licenses checked?
One of the most common questions is the question about the methods of examining the licenses of trading companies.
This is to avoid the risks of online trading represented by fraud attempts and to ensure a more transparent and distinguished investment experience.
The integrity of the licenses can be verified by more than one means, which are as follows:
- Ensure that the broker attaches a copy of the licensing document and does not just refer to it.
- You can contact the trading company’s customer service to ask it about all the details of the company’s legal status.
- Reviewing the regulatory authority itself and inquiring about the regulatory status of any of the trading companies, and that is the best way.
Is there a specific style of trading that is safer?
It is difficult to admit such a thing. All trading styles, as well as various financial instruments, involve a certain degree of risk.
This, as we mentioned earlier, is normal in any investment field.
Based on this, questions such as which is better to invest in gold or stocks, or are digital currencies better than commodities, are all questions that are difficult to find definitive and conclusive answers to.
There is a set of features and characteristics that distinguish every financial asset and every trading mechanism, and each of them has its drawbacks.
So it is left to the preference of the trader himself depending on his level of experience and the extent of his familiarity with the course of things within the financial markets.
As well as analyzing market trends and expectations regarding its future movements.
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