Ask yourself if you would buy stocks with your credit card. Of course, you wouldn't. Using margin excessively is essentially the same thing, albeit likely at a lower interest rate. Further, using margin requires you to monitor your positions much more closely.

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Exaggerated gains and losses that accompany small movements in price can spell disaster. If you don't have the time or knowledge to keep a close eye on and make decisions about your positions, and their values drop then your brokerage firm will sell your stock to recover any losses you have accrued.

As a new trader use margin sparingly, if at all; and only if you understand all of its aspects and dangers. It can force you to sell all your positions at the bottom, the point at which you should be in the market for the big turnaround. Just as you shouldn't run with scissors, you shouldn't run to leverage.

Beginner traders may get dazzled by the degree of leverage they possess—especially in forex FX trading—but may soon discover that excessive leverage can destroy trading capital in a flash. Forex brokers like IG Group must disclose to traders that more than three-quarters of traders lose money because of the complexity of the market and the downside of leverage.

Another common mistake made by new traders is that they blindly follow the herd; as such, they may either end up paying too much for hot stocks or may initiate short positions in securities that have already plunged and may be on the verge of turning around.

While experienced traders follow the dictum of the trend is your friend , they are accustomed to exiting trades when they get too crowded. New traders, however, may stay in a trade long after the smart money has moved out of it. Novice traders may also lack the confidence to take a contrarian approach when required. Diversification is a way to avoid overexposure to any one investment. Having a portfolio made up of multiple investments protects you if one of them loses money.

It also helps protect against volatility and extreme price movements in any one investment. Also, when one asset class is underperforming, another asset class may be performing better. Many studies have proved that most managers and mutual funds underperform their benchmarks. Despite all of the evidence in favor of indexing, the desire to invest with active managers remains strong. John Bogle, the founder of Vanguard , says it's because: "Hope springs eternal.

Indexing is sort of dull.

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It flies in the face of the American way [that] "I can do better. This may satisfy your desire to pursue outperformance without devastating your portfolio. New traders are often guilty of not doing their homework or not conducting adequate research, or due diligence , before initiating a trade. Doing homework is critical because beginning traders do not have the knowledge of seasonal trends, or the timing of data releases, and trading patterns that experienced traders possess.

For a new trader, the urgency to make a trade often overwhelms the need for undertaking some research, but this may ultimately result in an expensive lesson. It is a mistake not to research an investment that interests you. Research helps you understand a financial instrument and know what you are getting into. If you are investing in a stock, for instance, research the company and its business plans.

While this is not an easy task, and every other investor has access to the same information as you do, it is possible to identify good investments by doing the research. Everyone probably makes this mistake at one point or another in their investing career. You may hear your relatives or friends talking about a stock that they heard will get bought out, have killer earnings or soon release a groundbreaking new product.

Even if these things are true, they do not necessarily mean that the stock is "the next big thing" and that you should rush into your online brokerage account to place a buy order. Other unfounded tips come from investment professionals on television and social media who often tout a specific stock as though it's a must-buy, but really is nothing more than the flavor of the day.

These stock tips often don't pan out and go straight down after you buy them. Remember, buying on media tips is often founded on nothing more than a speculative gamble. This isn't to say that you should balk at every stock tip. If one really grabs your attention, the first thing to do is consider the source.

10 Common Trading Mistakes and How to Avoid Them | IG EN

The next thing is to do your own homework so that you know what you are buying and why. For example, buying a tech stock with some proprietary technology should be based on whether it's the right investment for you, not solely on what a mutual fund manager said in a media interview. Next time you're tempted to buy based on a hot tip, don't do so until you've got all the facts and are comfortable with the company. Ideally, obtain a second opinion from other investors or unbiased financial advisors.

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There is almost nothing on financial news shows that can help you achieve your goals. There are few newsletters that can provide you with anything of value. Even if there were, how do you identify them in advance? They'd keep their mouth shut, make their millions and not need to sell a newsletter to make a living. Spend less time watching financial shows on TV and reading newsletters.

Spend more time creating—and sticking to—your investment plan. For a long-term investor, one of the most important but often overlooked things to do is a qualitative analysis or to look at the big picture. Legendary investor and author Peter Lynch once stated that he found the best investments by looking at his children's toys and the trends they would take on. The brand name is also very valuable.

Think about how almost everyone in the world knows Coke; the financial value of the name alone is therefore measured in the billions of dollars. Whether it's about iPhones or Big Macs, no one can argue against real life.

Common Investor and Trader Blunders

So pouring over financial statements or attempting to identify buy and sell opportunities with complex technical analysis may work a great deal of the time, but if the world is changing against your company, sooner or later you will lose. After all, a typewriter company in the late s could have outperformed any company in its industry, but once personal computers started to become commonplace, an investor in typewriters of that era would have done well to assess the bigger picture and pivot away.

Assessing a company from a qualitative standpoint is as important as looking at its sales and earnings. Qualitative analysis is a strategy that is one of the easiest and most effective for evaluating a potential investment. Beginning traders may tend to flit from market to market—that is, from stocks to options to currencies to commodity futures , and so on. Trading multiple markets can be a huge distraction and may prevent the novice trader from gaining the experience necessary to excel in one market.

Keep in mind the tax consequences before you invest. You will get a tax break on some investments such as municipal bonds. Before you invest, look at what your return will be after adjusting for tax, taking into account the investment, your tax bracket, and your investment time horizon.

Do not pay more than you need to on trading and brokerage fees. By holding on to your investment and not trading frequently, you will save money on broker fees. Also, shop around and find a broker that doesn't charge excessive fees so you can keep more of the return you generate from your investment. Investopedia has put together a list of the best discount brokers to make your choice of a broker easier.

Trading is a very demanding occupation, but the "beginner's luck" experienced by some novice traders may lead them to believe that trading is the proverbial road to quick riches. Becoming a trader is not just knowing about basic psychology, there are a number of mistakes that you can make that will result in losses. Today you are going to learn about the top 10 as well as how to avoid committing them yourself.

These are not all the pitfalls that traders can fall into, but they are some of the most common ones and learning what they are can help you be more prudent. After all, an informed trader is a better trader.

The Worst Mistakes to Avoid When Trading Forex

Here are the top 10 Forex trading mistakes to avoid. One of the biggest mistakes is not having a risk management plan or system to manage returns. You should have a clear plan that shows how much money you can risk from your capital and set ratios. You need to understand that breaking any of these rules means breaking all of them, since they are all related and fall under the same psychological factor. Many traders always have a desire to be active in the market at all times and are constantly searching for opportunities, but trading too much is one of the biggest causes of loss in inexperienced traders.

You should never allow your potential losses on any trade or group of trades to exceed your acceptable loss amount. Risking a larger amount means that the psychological factor of wishing to return the larger than acceptable losses will interfere with your trading plan. You will look for any opportunity to re-enter the market and potentially make the wrong decisions under duress, because it will come from emotion rather than good analysis. Diversify is the name of the game. Moreover, while trading during the news announcements traders might experience slippage and would probably enter a trade far away from the intended price.