InvestorQ : Why it is so dangerous to trade is more than one can afford?
Moii Chavate made post

Why it is so dangerous to trade is more than one can afford?

Crowny Pinto answered.
3 years ago

What we saw at a very large level in the case of Barings is visible in a much smaller way to all traders. Remember, that every trader trades with finite capital and hence capital protection becomes the primary focus of every trader. You obviously cannot protect your capital if you recklessly take positions in the market. For example, if you are trading futures in the market then taking 5-7 times leverage with tight stop losses is understandable. However, if you leverage to the tune of nearly 20 times then you are running a huge risk that you cannot afford. Even a 2% movement can have almost impaired half of your total capital available for trading. Things can get worse in trading if you are also going to add overnight risk to your trading portfolio. When you carry forward positions to the next then there are lots of developments in the US, European and Asian markets that could make the trade go against you. In fact, if you are adding overnight risk to your trading portfolio then you need to get a lot tighter in your risk management. Limit the risk that you take on your positions. Trading more aggressively than you need to do and putting greater strain on your trading capital are the two cardinal sins.