I´ve been reading a lot of the beginners post here but there was no a comprehensive step-by-step guide for beginners to start with trading.
I´ll make a short one and hope it will be of some help to someone.
FX, Futures, Options , Stocks, or CFD? Buy and Hold or scalping? Thats some of the modern variations of Shakespeare to be or not to be
I advise to go for CFD and more specific Indexes(low margin...think a while about). CFD´s a high risk contracts but very cheap and therefore well suited for entry level traders so they can better manage risk and money.
One can easily understand how CFD´s work - You buy or sell, set targets and stop loss and the rest is monitoring.
The pitfall although is the leverage where one definitely tends to over trade. It costs you 18 euro to buy 3600 CAC derivative F40 so with a 5000 in your account what will go wrong if you buy 10 or even 20 contracts. That is not even 10% of your capital wright? BUT by doing so you only need 10 consecutive losses and you are out of money. So to manage properly your capital you would need to set the so called At-Risk CAPITAL.
Big players would never risk more than 10% but as a small player is advisable to set 50% as your at-risk and start from there.
That will reduce our capital by half and we now only got 2500 to trade with. Now let put 1% risk level to the game and we could enter any trade with no more than 25 euro - that allows us to buy or sell ONLY 1 contract of F40. In case of loss we still have plenty of capital to trade.
As you should not lose more than 1% the maximum loss on that trade should not exceed 25 euro(less is better).
As for options trading the max loss is what the premium is but each contract consist of 100 shares so if the premium is 2,50 multiplied by 100 is 250 and is not acceptable if you want to compete with the big players and keep the minimum risk of 1% on half of your capital. If you do have 50 000 in your account although this is very much a well done trade as you are trading without leverage and the maximum you would wipe out is exactly 250 euro (+ commissions )if the underlying is out of the money on the expire date which is 0.5 of you available equity or 1% of the at-risk capital.
Now as a rule in risk and money management The less the capital the higher the risk level.
to be continued as i go to sleep .....