Risk Involved in Trading

By | November 1, 2011

Before becoming too excited about the possible or expected returns from trading, it is very much important to know the risk behind the trading. Most people are naturally risk averse. They don’t like to take big risks in the fear of uncertainty. Many traders unnecessarily take risk of losing capital for higher gains. Generally, futures and options commodity trading has the reputation of highly risky endeavor. High percentage of people lose money in the expectation of substantial returns.

To become a successful trader, you must make the personal commitment to educate yourself for understanding what is happening in the market. One must also seek out the trading methods and approaches of successful traders. Traders starting trading with insufficient knowledge usually involve in taking big risks and risk a large portion of their trading capital in an attempt to get rich quick.

Another thing to understand about risk in trading is that you cannot avoid losses by a careful plan. Numerous losses are part of the process. Robert Rotella, the author of the book “In The Elements of Successful Trading”, says that “Trading is a business of making and losing money. Any trader, no matter how well thought out, has a chance of becoming a loser.”

Many people think that the best traders don’t lose any money and have only winning trades. This is absolutely false. The best traders lose a lot of money, but they eventually make even more over the time, and if you cannot handle the psychological discomfort of making losing trades then there is no point in trading, as trading itself depends on the emotions of the person and it involves a lot of risk in losing the entire investment in relatively short period of time.