Online Share Trading - Stop Losses6497006

People who don't know anything about trading shares will often tell you just how risky it is. Although these is some truth to that, the more sophisticated traders know that they don't have to be at risk at all. With all the wonderful tools that we have access to thanks to the internet we can hedge every trade we make to such a degree that we take 100% of the risk out of every trade.

If you think about it, risk only comes from not knowing what you can lose. A trade is only risky if you have no protection for your investment. If you know exactly what's on the line for every trade you make then risk almost disappears.

One of the most important ways to protect yourself is with stop losses. A stop loss basically allows you to get out of a trade before you lose more than you are willing to lose. By placing a stop loss you tell your online broker to automatically sell a share when it hits a specific price. This is very useful when a specific stock starts falling rapidly and if you don't have a stop loss in place you can quickly lose a massive amount of money.

Imagine you bought shares in XYZ for $1.00 a share. You don't have a stop loss and at 3:30 on Friday afternoon the CEO of XYZ announces his resignation. Investors get scared and start selling. By 4:30 that afternoon the price of XYZ is $0.20 and you lost your pants.

If you were a smart trader you would have set your stop loss at $0.90 in which case you would have sold all your shares at $0.80 and you would have lot a minimal amount ad still have your capital to go and make you money on another investment.

Never trade without a stop loss. It gives you peace of mind and it protects you from the inherent risks that come with trading. You can set your stop losses according to your own personal risk strategy but 10 - 15% below the buy price is the norm. Most online brokers these days also allow you to use trailing stop losses and is something worth looking into.

To get the most profitable returns through online trading, try AutoShares by visiting Automated Trading.