Understand your potential risk and reward

[JamesIG]

Understand your potential risk and reward

When you are placing a deal there is a chance that you will be wrong and the market will move against you. It's a good idea when going into each trade to know your potential risk, and to be aware of any exit levels either to bank a profit, or to cut a loss. There are a host of things you can rely on, but some of the most important points are below:

1. Know your risks and have an understanding of the wider market. If there is a big macro economic data release or an important political event it's important to understand this could effect the market. Keep an eye on our Morning Call to keep up to date with the market news.
   
   
2. Think about setting stops or guaranteed stops on your trade. A number of different options are available on the IG deal ticket, including advanced stop options which trail behind the market if it moves in your favor. 
   
   
3. Not every trade you place will be a winning trade. Learn to take losses when the market moves against you, and if you think the market is going to continue to move further against you it's financially better to book a loss on the current trade and re-enter the market when it's at a better level. 
   
   
4. Avoid emotional trading - reacting badly to a loss is just as bad as reacting euphorically to a winning trade. Some people also trade worse if they are tired or stressed, or have other things going on in their day to day lives. 
   
   
5. Don't place a deal just because other traders are as well. Know your own risk and make a trade plan accordingly.