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Tuesday, 25 August 2015

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Taking Risks in the Stock Market Trading

Risks are the essential part of trading. Be it any type of trading like stock market trading, commodity trading or Forex trading, there are always risks of incurring some loss. But while trading in the stock market these risks can be minimized using a proper stop loss. The stop loss prevents the trader from incurring huge losses and the trader exits the position with a limited loss. The stop loss can always be associated with both the buy and sell calls.

In case of a buy call the stop loss is put at a price below the buy price levels. In this case if the market goes up the trader can sell at a subsequent time to gain profit. However if the price decreases the stop loss will get triggered and a limited loss will be incurred and the trader will come out of the trade.

In case of a sell call the stop loss is put at a price above than the sell price levels. In this case if the market goes down the trader can then buy at a subsequent time and can incur profits. However if the market goes up the stop loss will get triggered and the trader will come out of the trade with limited loss.

The main idea of stock market is that the trader should buy at a lower price and sell at a higher price. Thus if this is done the trader will make profit. Also the trader can sell first and buy after that. This technique is known as short selling. In this case the trader will incur a profit if the market goes down. Thus in this case also the trader will make a profit only when the shares are bought at a lower price and old at a higher price.

The risks are always there in trading but following proper analysis and strategies the risks involved can be minimized. Also while trading, a proper stop loss should be applied to again minimize the risks of the trades.

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