Mistakes that cause money loss when investing in derivatives
In the process of investing in derivatives, whether you are a long-time investor or someone who has just joined, it is difficult to avoid making some wrong decisions. So let’s take a look at those mistakes with DNSE through the article below.
Lack of understanding of the nature of derivatives
Rushing and investing immediately without understanding the nature will lead to losses or even double losses many times a day.
Often, new investors are so focused on finding investment opportunities that they forget to prepare themselves with the necessary knowledge when entering the market.
For derivative securities, there are many differences compared to underlying securities, including: Trading time of day, maturity date concept, position concept, contract as well as the nature of selling Short or intraday trading, etc. From those differences, if investors are too hasty and invest immediately, it will lead to losses or even double losses many times a day.
There is no clear investment strategy
Not having a clear investment strategy easily puts investors in a situation where they do not know when to open a position, as well as making it difficult to determine profit-taking or reversal points.
From there, investors may make emotional decisions or follow the crowd’s opinion, leading to difficulty making profits.
In particular, in conditions where the index is moving sideways and fluctuating with a narrow amplitude, having an investment strategy is especially important, helping investors promptly grasp short movements of the trend and promptly implement them. Risk management plans when necessary.
No position management plan has been established
After successfully opening a position, position management, also known as margin deposit management, is always an important step.
The reason for this lies in the fact that derivatives have low margins, with 17% according to VSD regulations and the lowest at 18.48% (at DNSE), which means having extremely high financial leverage at more than 5 times.
However, this is also a double-edged sword, as investors need to pay attention to this deposit ratio so that the account does not fall to the processing threshold, also known as being forced to sell.
A notable point in the position management process is that in case the position generates too high a profit, if the investor does not have enough cash in the account to replenish the deposit, it will still be forced to sell due to The deposit position will be maintained in both profit and loss directions – similar to the two contract directions: buying and selling.
There is no plan to take profits or cut losses
Cutting profits and cutting losses is an important measure to prevent trading risks
Setting take profit and stop loss levels for each transaction is an important measure to prevent trading risks, helping investors not to suffer too high a loss as well as avoid being greedy and forgetting to take profits. , which can even lead to reverse losses in the position.
Currently, many securities companies allow investors to pre-set warnings or even close positions on behalf of investors when the position reaches a profit-taking milestone or a stop-loss threshold. .
Too dependent on third party opinions
The stock market is a place with many participants, which means investors can witness many different opinions from others.
Groups or “vip rooms” set up by one or a group claiming to be “professional investors” are no longer strange to investors. There are always people here who make “keys” for other investors.
However, no one can guarantee that recommendations are always completely correct, so there will be cases of intentionally making wrong recommendations to make a profit for themselves or to create mass psychology in the market.
Emotions are easily fluctuating
Psychological factors also have a significant impact when participating in derivatives
Psychological factors are always one of the most difficult factors to control and are also the cause of the most mistakes in the derivatives investment process.
Having an easily fluctuating psychology, combined with the nature of derivative securities allowing short selling (trading for profit on both the buying and selling sides), along with T+0 trading, is easy to visualize. This can lead to double losses if investors misidentify reversal or entry points, thereby making hasty decisions or losing composure during the investment process, leading to taking profits too early.
