Financial markets are heating up, especially with products like futures and options becoming more accessible to a wider range of traders. In fact, millennials and younger traders are beginning to take advantage of the free access to the financial markets and are developing their own portfolios like never before.
Of course, the financial markets should not be approached without care and sufficient knowledge. While there are so many opportunities to make money in a volatile market, it is still necessary to learn about the basics, understand how the market moves, and make careful trade decisions at the right times.
If you are thinking about investing your money in the financial markets, you are in luck. We spoke to some of the best experts in this field and compiled a list of five important tips for millennials entering the financial markets. Let’s go through them together, shall we?
Always Be on the Learning Side
No matter how much you think you know about the financial markets, there are still more things to learn and master. Constant learning is a trait that separates good traders from the best. You will be able to make better, more calculated trading decisions when you know more about the market.
One of the most important things to learn about is the products you are investing in. When trading shares, for example, you need to know more about the companies you are buying into. You can also collect information on stocks to buy now from various reliable sources.
The things you need to learn in the futures or options market are different. You want to be well-versed in the commodities you are trading before you start taking risks and making trading decisions.
The Risk-Return Trade-Off
One main principle to always keep in mind when investing your money in the financial markets is a risk-return trade-off. The principle states that the potential return you can earn from an investment is proportionate to the amount of risk you take on when making that investment. There is no such thing as risk-free, high-gain investment.
With this principle in mind, you can easily spot bad trades and bogus offers. The moment you see jargons like risk-free or high-gain without their respective counterparts, you know that you have to do more digging before making an investment.
The same principle also states that there are ways to manage your risks. Just because you are aiming for a big gain, doesn’t mean you have to absorb all of the potential risks yourself. Sometimes, you can hedge your investments and be on the safe side at all times.
Manage Your Risks
Speaking of managing your risks, there are a lot of ways you can manage your risks across the entire portfolio. While your options may be limited when you look at a particular market or investment, the financial markets are vast and are yours to utilize.
Having a diverse portfolio is one way to manage your risks. When the investments you make in one market don’t produce the expected returns you are aiming for, you have investments in other markets to lean on. This type of risk management – diversifying your portfolio – can be extended beyond the boundaries of the financial markets. For instance, you can add assets and long-term investments to further strengthen your portfolio as a whole.
Another way to manage your risks is by having sufficient margins to work with. This way, you can hold positions longer and stop worrying about getting margin-called. At the same time, you can open more positions to better secure your market presence.
Have a Plan
Always enter a trade with a clear plan in mind. Many traders, especially younger ones, make the mistake of simply opening a position on the spur of the moment rather than after a long and careful planning. Spontaneous trades are often fruitful, but you are actually taking on more risks without you realizing.
Trading with a plan is always the safest way to go. At the very least, you know the reason you opened a position or entered the market. You also have the basics, like when to exit the market and how to handle a market reversal, covered perfectly.
A broader plan for all of your trades is useful too. What are your objectives in entering the financial markets? How much profit are you after at the end of the month? Are you in for the short-term gains or are you aiming for long-term growth? Answer these questions and you’ll be a much better trader nonetheless.
Lastly, always remember that you will gain profits and lose money as you venture further into the financial markets. Don’t let the big gains you bank fool you into thinking that you are invincible. This will only lead to a series of bad calls and may even vaporize the big gains you just banked in just a few minutes.
The same is true with losses. Don’t let losses, big and small, upset you. Every trader loses money at some point. Trying to chase your losses immediately after isn’t necessarily the best way to go since you are also fooling yourself into making more bad calls and entering the wrong positions; don’t be surprised when you are hit with more losses if you trade when you are upset.
These mistakes are more common than you think. There are thousands of stories from the financial markets, including the forex market, about traders losing their entire margin just because they tried to recover their losses immediately after making them. Keep your emotions away from the trading platform at all times.
So, how do you get started with investing in the financial market? There are actually a lot of brokers and services that let you invest as little as $10 in the financial markets. All you need to do is sign up for an account and you are all set. Make sure you keep the tips we covered in this article in mind and you’ll be building a strong, profitable portfolio sooner than you think.