There has been a surge in the number of online traders in the United Kingdom in recent times. The easy access to the financial markets via the internet, commission free accounts from online brokers and the increase in liquidity in the last 2 years had encouraged online trading.
Also, the need to get an alternative source of income, especially among the millennial and Gen Zs has caused them to embrace online trading.
However, it is not all rosy for traders as trading in the markets comes with its own risk.
Uncertain Markets Conditions & Increased Risks for Traders
The financial markets are highly volatile currently due to growth worries, major Central Banks aggressive tightening of their monetary policies to control inflation. And there is increased risk of stagflation or maybe even a possible recession.
For traders trading on leverage during these uncertain market conditions, it means they may end up incurring huge losses rather than make profit.
It is for this reason the Financial Conduct Authority (FCA) restricted leverage for CFD and CFD like products to between 2:1 and 1:30 depending on the volatility of the underlying asset
These restrictions came as a result of widespread complaints and a record number of day traders who lose money trading CFDs. On average, more than 80% of online traders experience losses as per estimates.
While the brokers have reported increase in their profits while benefiting from the increased market volatility, this cannot be said the same for retail traders.
Ironically, those who really make profit from the financial market are the big Banks and Hedge funds who have a war chest to invest and do not really need leverage or these bonus gimmicks used to entice retail traders.
Warning Signs That You Should Not Be Trading
So how do you know if online trading is good for you? We will try to give you warning signs signs that will help you determine whether online trading is suited for you or not.
1. You Expect to Make Big Money Quickly
Many new entrants in the online trading industry come to the market, with the orientation that online trading is the elixir to financial freedom and wealth creation. They believe by implying registering and opening a trade, they’ll begin to make a profit in an instant.
This is a bad mindset which will inevitably result in losses.as a trader, you should have the long term in mind.
Online trading like any other legitimate business requires rigorous research, and painstaking analysis which takes time. It also requires an understanding of the fundamental factors and technical signs that shape the price movements.
One thing traders especially newbie online traders should understand, is that online trading is not a get-rich-quick scheme. It requires effort to do everything right. Even doing everything right is not enough guarantee for instant success in the market.
In online trading, especially with CFDs, the brokers will offer excessive leverage, and call it a means to magnify your profits. But this can ease turn into huge losses. As per this comparison of CFD brokers regulated in the UK, most of them had reported over 70% losses for retail traders in their most recent month of reporting, as per the data on their website.
This data indicates that most of the retail traders lose in forex, spread betting & CFD trading.
So if you have it in mind to make money instantly from online trading, that might just be a sign that trading is not for you. It’s best suited for those with patience.
2. You Are Too Busy to Read and Develop Yourself
Participating in the financial market requires you to read and develop yourself in the happenings and fundamentals of the market.
If you do not enjoy reading or you do not have time for education, and understand how the markets work, the economic cycles, the global macroeconomics, you do not stand a chance of being successful.
All financial markets are a very complex system, and only those who make up time to understand the nitty-gritty of it have a chance of making returns from it.
Also, those you are trading against are super smart, well-educated and have access to loads of information. This reinforces the idea that you must educate yourself in the fundamental and technical analysis of the financial market as you do battle.
Ignorance is not an excuse here. If you are not willing to do the hard work of reading and educating yourself, it is better you forget about online trading. It’s not just for you.
3. You Are Drawn to Shiny Objects
Online trading requires discipline and in the financial market, all that glitters is not gold.
As an online trader, you must have a trading methodology, balanced emotions and psychology, to be able to avoid the temptation of going after any instrument that shows signs of rising.
You should have a clear entry and exit strategy and stick to it, rather than jumping from one asset to another.
This brings about indecisive trading where a trader gets jumps from forex, to stocks, futures, CFDs, etc. As a trader, you should have a niche rather than being a jack of all trades, and master of none.
In today’s world, social media has a way of influencing your trading. There are countless analysts dropping signals daily. If you are easily swayed by the motley of analysts on the internet, then you are not ready for online trading.
This is not to discredit social trading and signals by experts on the internet, but as a true online trader you should be able to stick to your trading plan and not always follow the crowd.
4. You Don’t Like Being Alone
While this is not intended to discourage extroverted individuals from online trading, the reality is online trading requires long hours alone. Your computer becomes your new best friend.
Online trading is not exciting all the time. Sometimes it can be boring and involve sitting in front of your screen for hours trying to find a winning trade.
Some days the market might be extremely volatile while on other days, it will be too calm to open a trade. This means you have to sit in front of your computer all through the day observing the market. If you’re a very sociable and outgoing person, you may not be comfortable with that kind of job where you won’t have much interaction with others.
If you find yourself a sociable person that enjoys the company of people, online trading might just not be for you.
5. You Are Hot Tempered
Emotional intelligence is a vital skill for an online trader.
There are some days when you have to keep your emotions in check especially when losing. You’re most likely to make wrong decisions out of anger or too much excitement.
If you’re hot-tempered, online trading might not just be for you. Online trading is best suited for people who are masters of their emotions.
As an online trader, you trade against automated systems used by active traders and they show no emotion. A lack of emotional control could lead to extreme reactions to loss such as depression and even suicide
Did You Choose Trading or Did Trading Choose You?
It was the classical Greek sage Socrates that said “Man know thyself, the unexamined life is not worth living” we must understand ourselves, inner traits and how they suit the activities we seek to engage in.
Online trading although a trendy business now does not suit everyone. While it is possible to make return on your money with trading securities online, it’s not as easy as it’s said. You must ensure that trading online is good for you and by good for you whether it suits your inherent abilities.
This is because as an online trader, you are up against high frequency trading bots and big organisations in the financial market. It is only in doing what you love and perfectly suited for that you’ll be able to attain success. If you show the signs listed above, you should find another line of business as online trading is not good for you.