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Only trade with disposable money i.e. spare cash

Posted By Robert On Saturday, January 25th, 2014 With 0 Comments

If I ask you to bet $5 on the toss of a coin and if it’s heads you get back $20, you might say yes. If I ask you for $20,000 and maybe get back $80,000 it’s a different story for most people even though the odds are the same. There are extensive studies done on financial psychology and this will be a whole new area for you to look into when you can. For now let‟s focus on survival.

The aim for you is to learn and develop. For a host of reasons you should only trade the money you can afford to lose. If you are trading to support the family, pay your monthly mortgage or get back money lost elsewhere your focus will be on all the wrong things.

Trading is an investment, albeit a very active one and should be done only with spare money that you have and are prepared to risk in order to obtain new skills and increased return over other investment methods.

If you are a risk taker (and there are times in our lives when this is appropriate) then you should still start off small to prove your system, skills and build your expertise. Once proven then consider ramping up. There are not too many careers, businesses and potentially high yielding investments where you can start out small and where the costs can be very low. Small numbers of CFDs can be purchased at low commission rates and small entry costs (other than time) so use this and focus less on dollar returns initially as brokerage will be a larger percentage of costs until you gain the skills and confidence to trade larger positions. For now, consider the brokerage is your learning ticket cost and just focus on trading consistently for percentage gains that can be easily geared up later.

With CFDs you also have the potential to lose more than you invest. Many a trader has had a good run, can’t believe their luck and then borrow more money and leverage it up only to find they are in a deep hole as the market has turned, they made a mistake or an aberration happened to a particular stock or market.

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