Trading online - beware risks

Iain Giffen, consulting trader coach at Knowledge to Action and a professional proprietary trader himself, says that consumers should not enter the market without an understanding of the risks and risk management. "Without doing the proper research, the risk of buying a substandard product and losing capital is extremely high.

"South Africans are exposed to every product available on the international market due to the ease of internet and retail marketing. These products vary across the entire range, from 'robots' that 'make you money while you sleep', to trading systems, technical analysis and trading tip technologies."

"Retirees are generally the most inclined demographic to consider these products, as they have more time on their hands and the capital to invest, particularly if they were previously involved in running a business."

He advises consumers never to rush into a decision and that they should do substantial research on the products or packages available before making a commitment. "Bear in mind that you are embarking on a new profession, and should be treating your trading as a business. You need to ask yourself, 'what would I do if I were starting any other business, or moving into another profession?' The best starting point is to know what questions to ask and, when it comes to a trading product one of the most important is, 'how do you (or does your system) manage risk?

"Other questions include, 'what is the most I can lose on any one trade? How many losing trades can I expect to have out of every 100 trades placed and what reward/risk ratio does the approach/strategy have?' Also, of course, ask the vendor if they trade themselves." He explains that most people who sell trading products do not trade themselves and any vendor who cannot give this information should not be selling a Forex trading product.

Giffen advises that if a consumer does not understand the statistical behaviour and psychological implications of their trading approach they should not be trading. "Also, if anyone is looking to take control of their personal wealth creation through online trading it is advisable that they not try to go it alone.

"Coaching and education is best done through an effective coaching and training programme with an experienced trader coach who has successfully been through the process. Being provided with proven rules of engagement, a solid grounding in risk and money management and good mental coaching and training will give any new trader the best possible platform for success. This is often not easy, as most successful traders have no desire and no need to provide training or coaching on how to become a successful trader."

He says that if an individual wants to become a successful trader they need absolute commitment and determination and a desire to put in place the required level of preparation. "With solid research an individual will have a good appreciation of the reputation and track record of the offering they decide to go with, whether it's a product or a training programme. The cost of the product is usually minimal in the scheme of things as it is the risk of losing one's capital, by not being prepared for the challenges they will face, that is most significant.

"Anyone not committed enough to do the preparatory work required to become a successful trader should not enter the market," he concludes.