An Introduction to Trading in the Financial Markets: Market Basics

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One moment of fear or greed can lead to a moment of madness and months of hard won profits going down the drain.

Uncontrolled emotions should not be an excuse for losses and losses should not be an excuse for uncontrolled emotions. Trading affects psychology as much as psychology affects trading. Risk management involves calculating how much risk you are prepared to tolerate in order to make a profit. When trading it is important that traders realise the importance of Risk Management; it teaches you to pace yourself, to think clearly, and most of all, it helps keep your emotions under control.

Trading is no different. Never jump trading in the financial markets the market with your entire position. Test the market first with a smaller trade before taking your full position. One wrong emotional trade can produce a large enough loss to wipe out the profit of many profitable trades. Once you reach this target you should stop trading so as to avoid giving profits back to the market.

Afternoon in London, which corresponds to morning in New York, is the most volatile time of day for most markets, with the largest price swings and profit potential and losses.

During periods of extreme volatility it is usually best to stand aside if you are not an experienced trader. Use stop losses and limits — these take the emotion out of closing a trade and reduce the risk of unnecessary losses as a result of attachment to a position. Traders allow losses to grow as their emotional attachment makes them hope the price will reverse.

Some losing trades are not your fault; for example, an unpredictable event such as a terrorist attack could move the market, but…. Trade based on what the market is trading in the financial markets rather than what you think it should be doing.

Trends and market conditions can change; make sure your strategy changes with it. Contracts for Difference CFDs and margined Trading in the financial markets are leveraged products which carry a high degree of risk to your capital. Trading in the financial markets may move rapidly against you and may result in you losing more than your initial deposit. CFDs and FX may not be suitable for all investors and you should fully understand the risks involved before opening an account.

Trading psychology — what does it mean and why is it important? Fear and greed can ruin even the best trading strategies One moment of fear or greed can lead to a moment of madness and months of hard won profits going down the drain Uncontrolled emotions should not be an excuse for losses and losses should not be an excuse for uncontrolled emotions Remember!!

Risk management involves calculating how much risk you are prepared to tolerate in order to make a profit For a more detailed look at Risk and Risk Management tools please refer back to the "Risk" Module When trading it is important that traders realise the importance of Risk Management; it teaches you to pace yourself, to think clearly, and most of all, it helps keep your emotions under control. Test the market first with a smaller trade before taking your full position Trade sizes that are too large for your account can cause exaggerated price swings and play havoc with your account as well as your emotions.

This can then lead to mistakes caused by fear trading in the financial markets greed. Like we said before trading affects psychology as much as psychology affects trading Do not forget that a trade can go wrong — if you are dreaming of a huge profit by taking a large trade size, remember this high risk trade can also produce a loss as big as the profit you were dreaming of.

Here are some more trading tips that you may find useful Implement risk management Use stop losses and limits — these take the emotion out of closing a trade and reduce the risk of unnecessary losses as a result of attachment to a position. Traders allow losses to grow as their emotional attachment makes them hope the price will reverse The hardest thing a trader has to do is manually close a losing trade; placing a stop loss order at the same time you make a trade will avoid having to do this.

Traders often complain when their stops hit then the price reverses; never cancel a stop loss order after you have placed it. Make sure to make time for researching the markets when you are not trading An informed trade is always a better option than an impulsive trade Patience Patience is a virtue in trading; it is different to not trade through fear Patience means… …waiting for the price to hit your indicators before trading …waiting hours if necessary for the correct time to enter the market.

Trading profitably is what matters, not the number of trades per day …not jumping in trading in the financial markets trading just because you see the price moving or you are bored …not trading on a tip. You will find wildly divergent opinions even among so-called experts. Do your own research before you trade Standing aside is a valid trading decision Overtrading Overtrading is a common mistake made by new traders as they try and catch every small price move The price moves down so they sell, it moves up so they buy, in doing trading in the financial markets they are trading in the financial markets chasing the market and usually losing.

Did you fail to anticipate the release of an important piece of economic data? A common mistake is to close a position that is in profit and keep one that shows a loss. Demo account Live account.

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Forex trading and margin trading carries a high level of risk and may not be suitable for all investors. It could also result in losses equalling to or exceeding your initial investment. Before deciding to invest in Forex trading or margin trading, you should carefully consider your investment objectives, level of experience and risk appetite.

Contracts for Difference CFDs and margined FX are leveraged products which carry a high degree of risk to your capital. Prices may move rapidly against you and may result in you losing more than your initial deposit. CFDs and FX may not be suitable for all investors and you should fully understand the risks involved before opening an account.

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