How To Limit Your Loss in Stock Market

The stock market is truly one of the most exciting places to invest your money. And from the volatile environment of the stock market, it can also be one of the riskiest. If you plan to invest your money on the stock market but are afraid of the losses, there are some ways to ensure that you can limit this. If you are interested in investing your money in the stock market with as little risk as possible, here are several ways.

  • Know the stock market well. First things first, don't enter the stock market if you have not read up on it. While it is true that you can hire brokers, you must still do your research so you will know if you are making the right decisions. Read up on the stock market, read articles from financial magazines, get a feel of the trends, and learn the different risks that you may encounter while immersed in the stock market.
  • Buy put option. Buying put option lets you protect the position of your long stocks. Buying put option may entail you to shell out extra bucks but the protection you will get from it will be worth it. The premium on the put option will depend on the strike price and expiration date, so make sure that you pay attention to this. If you want to purchase the put option at a lower premium, wait until the stock price spikes in the downtrend. This move is just like buying insurance to protect the position of your stocks.
  • Set up a stop loss order. This ensures that your account prevents any more loss once stocks go down. A stop loss order automatically sells once the stocks go down below a price level previously set. Doing this provides you with instant action when things go downhill.
  • Set up a trailing stop order. A trailing stop order is needed when you have stocks that increase rapidly. If these stocks start going down at a predetermined percentage or point, the account automatically sells. These are helpful for fast moving stocks. Like in the stop loss order, this nips any losses you may incur in the bud, quickly cutting off more losses by selling as quickly as it can.
  • Create a relationship with your broker. The important thing is creating a relationship with your broker. Make sure that you have the same goals. Make it clear that your goal is to have as minimal losses as possible. Ensure that your broker's goal is to protect your portfolio as much as you can. When you discuss this with him, make sure that you show him or her that you know what goes on in the stock market, so he will know whom he is dealing with. Make it known that you are playing hardball and would only want commitment and fine form from him or her. Brokers make or break your portfolio so it is important that you find someone you can trust completely.

Entering the stock market is indeed a risky adventure, yet the results can be extremely favorable if you know how to play your cards right, so to speak. Before deciding on investing any of your money, consult with experts first. Sometimes they will give you insight into the stock market that will prove to be invaluable to you.


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