Australian stock trading is attracting more and more people. However, before you start trading stocks, you need to know that the market always has inherent risks attached. Though one can learn about different stock trading techniques, one must remember that it’s not an easy game to win.
It takes years of experience and skills to become an expert at it. An essential tool for every trader is risk management; one shouldn’t indulge in risky trades without proper risk management tools.
Top 3 Risk Management Strategies Used by Expert Traders in Australia
Go Short When You Need To
Many public traders invest their money in trending stocks, hoping that their value will eventually go high. However, this practice is hazardous, and one should avoid it as much as possible.
Short trading involves betting that the stock’s value will go down so you can sell it at a higher price and make a profit. It is a more conservative way of trading and can be used when you’re unsure about the stock’s future. For example, you can short sell a stock when you think the market is overvalued or when you expect a fall in the stock’s value.
If you’re new to Australian stock trading and want to do short trading, you need to learn about its risks carefully; understand how the market behaves and what factors affect its movement – because knowledge is the key to success here. Once you’ve done enough research on your target investment option (public company), go for the short trade.
Short trading can be highly effective if you use it wisely. You can make a profit even when the stock’s price fall by a few per cent, but your stop-loss should be strict.
Diversify Your Portfolio
Diversification is another important risk management strategy that every Australian stock trader must follow. You can’t predict how the market’s behaviour tomorrow; not everyone has the same opinion on a particular stock (though they’re supposed to read the same material). However, if you spread your money with multiple investments (stocks), then you don’t need to worry much in case of any black swan events.
Black swan events are unforeseen incidents that cause a drastic change in the market, negatively affecting your investment. For example, if you’re holding shares of Apple Inc. and the US President announces that they will no longer accept them, then your investment will undoubtedly fall. However, if you’re holding shares of multiple companies (including Apple Inc.), then the fall in the price of one company won’t affect your investment much.
A foolproof way to diversify your portfolio is to invest in different asset types such as stocks, commodities, forex, etc. You can also spread your money in various geographies to neutralise the adverse effects of a particular event.
Be careful of over-diversification as it can lead to a loss of investment. You have to balance your portfolio in a way that all your investments generate equal profits at the end of the day.
Australian stocks trading without expert advice is like driving a car in the dark. You may not be able to reach your destination on time if you’re doing it all by yourself. The same goes for Australian stock trading; you must get in touch with an experienced stockbroker to learn about different stock trading techniques and then make a well-informed decision.
If you choose to not work through a broker to avoid paying commission, there are a lot of online portals from where you can access quality material free of cost. However, before engaging with any website for information, ensure they have authentic content. Online scammers love taking advantage of newbie traders who work hard to earn money through stock market investments. Don’t let them fool you, and always trade stocks with caution.
By following these simple tips, you can minimise the risks associated with stock trading and safeguard your hard-earned money.