Here’s What Experienced Traders Do That Make All the Difference

You’ve just started trading or are thinking of getting your feet wet. But how do you begin, and what do you do to ensure you are starting off right? You might also be extra cautious and fearful of making a mistake with drastic results.

Relax. 

In this article, we debunk strategies that experienced traders do that make a difference in their trades, even during market turmoil.

Trading is a very wide field, with a plethora of products and strategies to choose from. For example, some traders prefer to trade FX, where they need to look at currency pairs. Others prefer to trade commodities, such as gold and oil.

There are plain vanilla call and put options with no special or unusual features, leveraged products and more. Strategies can vary from fundamental analysis and momentum trading.

If you want to try out leveraged trading, a good starting point is IG’s latest product called Knock-Outs (KOs). This product has an in-built ability to limit risks, and determine your levels with easy-to-use tools like stops that help to protect you from market volatility. 

Keep reading for a step-by-step guide to executing trades on IG’s KOs. 

 

The key differences between new and experienced traders

Having been in the market for much longer, experienced traders have, well, obviously more experience than new traders.

This means that they have had much more practice executing trades, have probably seen varying cases of market performance (be it ups or downs), have likely been through periods of market volatility, are exposed to a variety of products (i.e. trading is not all about FX), and have learnt valuable lessons through their losses and successes.

Experienced traders would also make good use of the array of tools an investment platform puts at their disposal. And if these tools can guarantee a better outcome or limit their losses, and on top of that, allow them to carve out more time out of their busy schedule to do other things — even better.

Here’s what experienced traders do to maximise their trades and better manage their risks:

 

1. They use stops from the start, and on all of their trades

Using “optional” tools like stops the right way can make all the difference between a successful trade or one that you may regret executing.

Unfortunately, this optional stop feature is often neglected at the start, especially by new investors. Firstly, because it’s optional, and secondly, because they rather  actively manage the trade. However, new traders often neglect the fact that markets swings can be sudden and unforgiving at times, actively managing your trades may not mean that you can close your trade out before market slippage happens.   

On that note, Knock-Outs aim to help traders overcome such market condition with a unique feature of  having an in-built stop called the KO level which requires the trader to place from the beginning.

They make sure to set this stop from the start of each trade — and on all trades. The key thing is not to just focus on the riskier trades, adding a stop to all your trades can prevent gapping or slippage — no one can 100% predict how the market will react.

 

2. They use limits to help their gains

Setting a limit is also optional, and why would we want to do that if it means we are potentially limiting our gains?

Experienced traders who have seen volatile markets know that if something can swing up, it can also plunge down. Say you diligently set a stop for your KO but neglect to set a limit.

The price is in your favour before the trade closes, but suddenly moves negatively and triggers your stop. Where you could have made a small profit with your limit order, you will now have made a loss (depending on your stop level).

 

3. They know that some premiums can be refunded

Having been in the market long enough, experienced traders scrutinise the ins and outs of a financial product before trading. This way, they can optimise the use of the product, and avoid paying more than they need to.

For example, did you know that the premium paid at the beginning for the Knock-outs level can be refunded?

If your stop is triggered before reaching your KO level, the trade will close. This can save you from having to pay the KO premium (only paid when your KO level is hit) if your trade gets closed by the stop.

Here’s an example:

Martin buys a Bull KO with an offer price of 3170. He sets the KO level at 3155, and buys 10 contracts . This means that the trade will move $10 for every point movement of the underlying asset.The margin or KO premium that Martin will need to pay at the beginning is: [(3170 – 3155) X 10(size)] + 10 (premium) x 10 (size) = $250 Hence, his maximum loss (the money he has already paid) is $250. However, if the trade drops and Martin closes it at a stop of 3160 (KO level is 3155). If that stop is triggered, he gets his margin of $250 back. Hence his loss is now reduced: Realised Loss: [3170 – 3160] x 10 = $100

 

Step-by-step guide to trading KOs on IG

Whether you’re new to the market or an experienced trader, IG’s KOs can be a great addition to your portfolio. If you have not opened an account, you can do so here. Here’s a quick step-by-step guide to making your first KO trade on IG:

Step 1: Go into your IG platform and click on Knock-Outs on the left column. A range of available markets for you to trade KOs will appear.

Step 2: Choose to trade on a Bull or Bear Knock-Out

Step 3: Pick your Knock-Out Level. This will indicate the maximum amount of risk you are willing to take.

Step 4: Enter your trading lot size, “limit price” and “stop loss”. Once that’s done, you can proceed to click “Place deal”.

*Screenshots and walkthrough courtesy of IG

 

 

New asset class inclusion for IG KO trades — equities

IG has recently included equities (AKA stocks in companies) as a new asset class for traders to trade KOs on. This brings more options to the table for both new and experienced traders.

IG is also one of the first Contract For Difference (CFD) brokers in Singapore with the KO offering. 

A CFD is the difference in price at the start and at the end of a trade, while KOs are essentially a limited-risk CFD product that enables you to trade into a range of asset classes including forex, 24-hour indices, commodities — and now equities as well.

Read more on the differences between CFDs and KOs here.

As you’ve gleaned from the discussion above, KOs are programmed to close once the market price reaches a KO level that has been set in advance by you. You buy KOs based on whether you think the market will rise (bull) or fall (bear).

With the above strategies in mind, experienced traders can better survive a volatile market by using guaranteed stops to limit their liability as the stop acts as a safety net. 

Traders of any risk tolerance or strategy can optimise each and every trade by using tools available to them. On the IG platform, there are also charting tools to help traders visualise their stop, limits and KOs, as well as work out a risk/rewards ratio — in addition to other benefits of trading KOs. This helps them manage their maximum risk at the start of every trade.

Do note that every financial product comes with risk, but the key thing is how we manage that risk and do our due diligence by being prudent with our money.

Click here to find out more about IG Knock-Outs and set up a free demo account that gives you $200,000 virtual credits to test the feature.

To find out more about alternatives to FX trading, check out IG’s Bloomberg ebook, which also includes a chapter on Knock-Outs.

 

Disclaimer:

This advertisement has not been reviewed by the Monetary Authority of Singapore. The information in this article is meant for informational purposes only and should not be relied upon as financial advice. Users may wish to approach a financial advisor before relying on any advice provided by the website to make any decision to buy, sell or hold any investment product. Contracts for Difference (CFDs) are speculative products. The leveraged nature of CFDs involves the risk of losing substantially more than your initial investment.