Brokers are individuals or firms that arrange transactions between a buyer and a seller for a commission when a trade or deal is executed. In some cases, a broker may act as a seller or buyer on behalf of a client and that is when they become a principal party to the deal.
Being a broker is a risky venture, but as a trade broker, you are liable to many risks. No one becomes a trader without prior knowledge and a broker becoming a trader or working in online trading must have the requisite education and training. Experience is the best teacher, so a broker must have the requisite training and certifications before they act as a middleman for a buyer, seller, or principal party to the deal.
Even with the requisite knowledge, brokers are liable to make several mistakes during a trading cycle or when brokering a trade deal. However, below is a highlight of the mistakes that brokers make that are easily avoidable.
1. Not Doing Market Research
This is one of the biggest trading mistakes that brokers make when they engage in trading activities, research. A broker is as good as the amount of research he or she has on several trades, as it will keep him abreast of market trends and offers him or her the ability to predict the future of assets.
As a broker, when you are armed with market analytics and research, you can engage in a back-test of trading assets to combine when you want to buy or sell within a period and at the right time, or know the ones with longtime viability to keep in your trading portfolio.
Market research provides you with the requisite historical data and trends within your preferred market. Though it is good to follow media reports and tips, it is wiser to do your research using analysts and market strategists, before deciding on forex trades, so you don’t become volatile to market risk.
Not only that, brokers that cannot do market research end up not having a trading plan and journal, something that could save you from losing more money in online trading. When you do market research, you have a perfect knowledge of how to approach the market, buy assets, trade them out, spread your profits to earn more money, and make decisions that safeguard your portfolio, all of which will be part of your trading journal.
2. Trading Platforms Or Assets
Many traders have lost more money by trading on multiple platforms without focusing on the ones that play to the strength of their asset, what this means is that, familiarise yourself with the trading platforms before buying assets there. You can trade with https://www.trusted-broker-reviews.com/libertex/ which has markets in cryptocurrencies, indices, oil and gas, metal, shares, forex, agriculture, ETFs but that doesn’t mean you are obliged to buy assets in all these markets, a common mistake that brokers make because it is easy to get carried away by all the return in investment from the markets.
Brokers need to avoid irrational trading as it often leads to placing a trade on assets without the proper fundamental and technical justification on varying markets. As a broker, you need to make a conscientious trading decision about platforms that can give you the best financial cover for your asset either in the long or short run while also considering reduced commission fees.
3. Not Leveraging Right
Within the framework of the financial market, you can use loaned money to open financial positions which brokers tend to do all the time. However, the use of leverage magnifies gains and losses, so managing the amount of leverage is key.
Brokers play an important role in protecting their customers, but they make the mistake of offering unnecessarily large leverage levels such as 1000:1 which puts novice and experienced traders at significant risk.
Meanwhile, a regulated broker is expected to cap leverage to appropriate levels guided by respected financial authorities. A broker should not put customers or investors at risk because he is looking for quick financial gains at the risk of committing violating financial regulations.
4. Not Having a Risk Management Strategy
An extension of having a trading journal is stating your risk management strategy. Brokers make the mistake of not having a definite risk-to-reward ratio, stop loss or take profit percentage.
A positive risk-to-reward ratio such as 1:2 refers to potential profit being double the potential loss on the trade, using a ‘stop-loss’ either in currency amount or percentage helps to surge loss and exposure during a trading cycle while a ‘take-profit order helps you think long-term, in case the asset enters a sudden shortfall.
Brokers that know what they are doing during online trading cycles, not ones hoping to make quick gains and pull out can avoid the aforementioned mistakes.