The past two years have seen new investors and traders pour into the markets. Many want to know the secret to success when trading in the financial markets.
The Motley Fool spoke to Stavros Lambouris, CEO at HYCM International, an online provider of forex and contracts for difference (CFDs) trading services. Here’s what he had to say about steps investors can take to be successful.
How can people be successful traders?
“Even the most experienced traders would benefit from revisiting the basics when it comes to mitigating risk,” Stavros urged.
On a more technical level, Stavros believes one of the benefits of trading contracts for difference (CFDs) and forex is that investors can maximise their capital investments and, in turn, increase their profits – or their losses. It’s important to remember that your capital is at risk when investing and trading.
For example, using leverage can allow traders to take on a greater position in a stock by using credit provided by a broker, so they only have to pay a percentage of the value of the transaction.
However, Stavros warned that this can be a “double-edged sword”.
He recommended that traders have a very clear idea of when to exit if a trade doesn’t go their way. Traders should also avoid over-leveraging. “When a trade turns into an investment, traders risk losing their money in the blink of an eye if the market shifts,” he cautioned.
What support do traders look for in their platforms?
Firstly, traders should only choose fully regulated brokers. In the UK, the regulator is the Financial Conduct Authority (FCA).
Traders need a few things to follow the markets effectively, Stavros explained. Most importantly, they need access to a reliable trading platform that is always ‘up’ and accessible during market hours, as well as competitive trading spreads – which means that access to the markets is not prohibited due to high transaction costs.
Traders will also benefit from receiving ongoing support and opportunities to enhance their knowledge, as well as access to up-to-date news given its significant impact on financial markets.
What are the key risks to investors right now?
Inflation and interest rates were dominating discussions until recently. However, the war in Ukraine has taken over these conversations. Global stocks and investments linked to Russia have nosedived since the country’s invasion of Ukraine. This has prompted the West to impose a raft of financial sanctions to cripple Russia’s economy.
In terms of how this affects the wider economic landscape, investors should be aware that the price of oil has surged hugely to over $113 a barrel.
“This may rouse some concerns about a knock-on effect to already rocketing energy prices, potentially spurring inflation figures further,” Stavros warned.
Does inflation pose a risk when trading?
The simple answer is yes.
Although stock markets can gain alongside rising interest rates, traders will be asking if current growth levels can be maintained.
Stavros believes the answer will lie with inflation figures and the pace of further interest rate hikes from central banks.
For example, if inflation is seen to be rising too quickly based on CPI figures, then investors may anticipate aggressive action from the US Federal Reserve.
Stavros stated, “Hypothetically, this would weigh on stocks, so traders would do well to keep this in mind.”
High-risk investment warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this provider.
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About the author
Katie is a financial journalist and personal finance writer. She writes on a range of topics including investing, insurance, and managing your money.
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