Trading in the financial domain might seem like a lucrative way to make a fortune. However, the pitfalls associated with it are often underrated. Online trading has revolutionised the way we invest in financial markets.
With a few clicks of a button, you can buy and sell various financial instruments, including stocks, bonds, mutual funds, options, futures, etc. Online trading has many advantages, such as convenience, accessibility, lower costs, etc. However, there are also hidden risks that investors aren’t usually aware of but should be.Â
Let’s learn about the hidden risks associated with online trading.
Poor knowledge and experienceÂ
A lack of knowledge and experience can lead novice investors to get into a debt trap in pursuit of exponential gains. Many investors are lured into trading by the promise of quick and easy profits. However, they aren’t fully aware of the risks involved. Without proper education and experience, investors may fall prey to scams, make hasty decisions, and lose money.
Investors must educate themselves about the financial markets and the assets they trade-in. They should start by learning the basics of trading and investing, such as risk management, market analysis, and technical analysis. There are lots of resources available online to learn from. These include webinars, blogs, courses, etc. It is highly recommended to start trading with a small amount of money. Once you have the knowledge and experience, you can invest a larger sum.
Scams and fraud
One of the biggest hidden threats in the online trading space is scams and fraud. Scams and fraud are omnipresent, and you must learn to identify them before it’s too late. These scams can take many forms, such as fake trading platforms, Ponzi schemes, and fake investment opportunities. Investors may be promised high returns with low risk, but in reality, they may lose their entire investment.
Investors must conduct in-depth research before investing funds into a trading asset. They should check the credentials of the broker or platform they are using. One can read reviews from other investors and avoid unsolicited offers of investment opportunities. Registering with a reputed brokerage firm like Religare Broking Limited is highly recommended. Choosing the best broker for trading makes the process smooth.Â
Overtrading
Overtrading is another hidden risk of online trading. It refers to the excessive buying and selling of financial instruments, leading to high transaction costs, increased risk, and reduced returns. Overtrading may be driven by greed, fear, excitement, or the belief that more trading leads to greater profits.
Investors should set clear trading goals and stick to them to avoid overtrading. They should also develop a trading plan that includes entry and exit points, risk management strategies, and rules for taking profits and cutting losses. Investors should also avoid making impulsive trades based on emotions or market rumours..
Cyber-security Risks
Online trading also exposes investors to cyber-security risks, such as hacking, phishing, and identity theft. Hackers and cybercriminals may target online trading platforms to steal personal and financial information or disrupt trading operations. Investors may also fall victim to phishing scams, where they receive fake emails or messages that trick them into revealing their login details or other sensitive information.
In order to protect themselves against cyber-security risks, investors should use strong passwords and two-factor authentication to secure their trading accounts. They should also use trustworthy antivirus software and update their devices with the latest security patches. Investors should also be wary of phishing scams and avoid clicking on links or downloading attachments from unknown sources.
Conclusion
There are many benefits that online trading offers. However, it also has hidden risks that investors aren’t aware of. New investors should learn about the financial markets and the instruments they are trading. It is crucial to detect and avoid scams and fraud. Choosing a reliable and reputed brokerage firm like Religare Broking Limited is vital.
