Investing money is a very good way of increasing wealth but involves certain risks. A trading account helps one buy stocks, bonds, and other financial assets and sell those assets. However, it is essential to protect investments in order to avoid losses.
This guide will tell you how to protect your investments with a trading account in really easy words so even a 10-year-old could understand it.
1. Select a Legitimate and Regulated Broker
A broker is a company that offers trading accounts. The first step towards safeguarding your investments is finding a trustworthy broker.
How to Choose a Safe Broker:
• Regulation: The broker should be accredited with relevant authorities like SEBI (India), SEC (USA), FCA (UK), or ASIC (Australia).
• User Reviews: Get the feedback of other investors about the broker.
• Transparency: Fees, platforms, and security measures should be crystal clear to brokers.
• Customer Support: A good broker provides 24/7 support to help you with issues.
Example: In 2023, SEBI imposed penalties on 10 brokerage companies for misbehavior with the clients, thus emphasizing the role of regulated brokers.
2. Adopt Good Security Measures
Attacks from hackers and fraudsters are very common on trading accounts.
To ensure your account security:
• Use Two-Factor Authentication (2FA) – it adds an extra layer of protection.
• Make Strong Passwords – using many symbols, letters, and numbers all together.
• Do not Use Public Wi-Fi – hackers steal your account details over unsecured networks.
• Ensure Software Update – Keep your trading applications and devices updated.
• Enable Account Alerts – make SMS/email notification for every trade.
Fact: a report on cybersecurity in 2022 stated that weak passwords were behind 60% of online fraud cases.
3. Diversify Investments
”one cannot place all the eggs in one basket.” This implies having investments in different assets rather than just investing all money in one place.
Ways you could diversify:
• Stocks: Invest in companies belonging to different industries.
• Bond: Safer than stocks, but returns come in fixed folds.
• Mutual Funds: The mix of stocks and bonds and managed by experts.
• Further Investment: Gold & Commodities – These help greatly in bad times.
• Cryptocurrency: Risky, but it can give great returns. Example: According to the financial crisis in 2008, investors holding only bank stocks lost up to 50-70% of their money, whereas loss was much less in the case of diversified investments.
4. Understand Market Risks
Every investment has some risk involved in it; even if you know all the risks, knowing what they would be is a good way to improve your choices.
Common Market Risks:
• Volatility: Prices of stocks keep changing from day to day.
• Inflation Risk: The value of your money decreases over time due to lower yields against inflation.
• Liquidity Risk: Some of the properties take a long time to sell.
• Economic Downturn: This can include pandemics such as that of COVID-19 (2020) which led to crash in the stock market.
Fact: It was March 2020 when the S&P 500 Index fell by 34% in just one month due to the cause of a pandemic.
5. Use Stop-Loss Orders
A stop-loss order allows one to contain losses in case the price of an investment drops.
How It Works:
• If you buy a stock at $100, put a stop-loss at $90.
• When the stock price drops to $90, it will be auto sold by the system.
• Thus, one can protect himself from huge losses if the crash were sudden.
Example: In 2021, Tesla dropped 15% in a week. Investors who had stop-loss orders avoided large losses.
6. Follow Market News
The financial market changes from day to day. Holding news checks will allow you to make informed investment decisions.
Where to Track Updates:
• Financial News Websites – Bloomberg, CNBC, MarketWatch.
• Stock Market Apps – MoneyControl, TradingView.
• Use Social Media & Podcasts – Follow experts over Twitter or YouTube.
• Company Reports – Look at annual reports of companies before investing.
Fact: 75% of successful traders use market news daily to determine their investing.
7. Never Trade on Emotion
Fear and greed can ruin the investment strategy of an investor. Wise should remain calm and unbiased in their judgment.
Major Errors to Avoid:
• Buying in Hype – Never invest just because others do.
• Selling in Panic – Markets can go up and down; hold on tight.
• Overtrading – So many trades equate to higher costs and losses.
Example: Dogecoin is another classic example of how social media hype pushed prices up by 800% in 2021, followed by another crash in late 2021. Many traders, therefore, lost money to FOMO (Fear of Missing Out).
8. Keep a Trading Journal
A trading journal tracks performance and enhances strategy.
Things to Record:
• Stocks bought and sold
• Entry for and exit from trades
• Reasons for buying/selling
• Lessons learned from mistakes
Fact: Professional traders recommend keeping a journal because it reduces losses by about 20% in the long run.
9. Invest Long-Term
Long-term investment reduces risk and usually gives good returns.
Why Long Term Investing:
– Compounding Growth: Your money grows as time passes.
– Less Stress: No need to check prices every day.
– Lower Taxes: Usually, long-term gains have tax advantages.
Example: Today, your $1,000 investment in Apple stock in 2005 would have grown to over $40,000.
10. Learn Before You Trade
Risky trades do not work. You ought to be educated before trading.
Ways to Learn:
• Reading Books – The Intelligent Investor by Benjamin Graham
• Take Online Courses – Udemy, Coursera, Investopedia
• Practice Using a Demo Account – Offering free virtual trading by most brokers
• Follow Experts – Learn from experienced investors.
Fact: Studies found that traders who take financial courses earn 30% more profits compared to those who do not.
Conclusion
Securing your investments requires planning, wisdom, and discipline. These 10 strategies will help you to be putting your money in safe hands while gradually increasing wealth.
