Trading: What is it and why is it risky?

Trading is the process of buying and selling financial assets, such as stocks, commodities, cryptocurrencies or forex, with the aim of making money from changes in their price. For example, in the early days of cryptocurrencies, you made money on almost everything you invested. Today, this is no longer the case and trading is becoming increasingly challenging. This concept, although it sounds simple, is complex and involves a high level of risk.

How does trading work?

The basis of trading is the idea that a trader can predict price movements in the market and use these changes to make a profit. Trading can be done on different time horizons:

  • Day trading: Trades are concluded within a single day.
  • Swing trading: A trader holds an asset for several days or weeks.
  • Long-term trading: Trading with a long-term horizon.

Traders use technical and fundamental analysis to predict price movements. Technical analysis focuses on charts and patterns, while fundamental analysis evaluates economic and financial factors.

Why I don’t recommend trading?

While trading can be tempting because of the potential for high profits, there are several serious reasons why I don’t recommend it to beginners or the general public:

  • High risk of loss – most beginning traders lose money. Markets are unpredictable, and even experienced traders make mistakes.
  • Emotional exhaustion – trading requires quick decision-making and constant monitoring of the market, which can cause stress and emotional exhaustion.
  • Required knowledge and time – trading is not a game or a form of speculation. It requires years of study, practice, and discipline.
  • Fees and credit – trading fees and the possibility of using leverage can quickly reduce profitability or even cause large losses.
  • Low statistical chances of success – according to studies, less than 10% of traders achieve long-term profits. Most of those who start end up with losses.

Alternatives to Trading

For people looking to grow their money, there are less risky and more effective ways in the long run:

  • Investing in index funds: ETFs (Exchange-Traded Funds) offer diversification and lower fees.
  • Passive investing: Buying assets for the long term without the need for active management.
  • Financial literacy education: Understanding the basic principles of investing and managing your finances.

Conclusion

Trading may seem like a quick way to profit, but in reality it is a complex and risky activity that is not suitable for everyone. Before you get into trading, consider your goals, knowledge, and risk tolerance. Alternatives, such as long-term investing, provide a safer path to financial independence.

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