COVID-19 pandemic is not only affecting our day to day life but also our economy. This deadly disease has affected our markets so severely that it would take years to recover the losses. Several businesses have shut down, and millions of people have lost their jobs. The impact of this global crisis is considered to be much worse than the 2008-2009 financial crises. The worst thing is, the condition is going to get worse in the upcoming months.
No doubt that the biggest concern for all governments is to save the life of people. The market recovery and saving economy would take time. Trading always has a risk factor associated with it. But in this crisis, the traders are facing much higher risks as far as their investments are concerned.
Today, traders are looking for ways that can help them in minimizing their losses while trying to get maximum returns. If you are a trader or an investment company who is losing peace of mind and sleep by worrying about market investments, here are a few tips that would help you minimize losses during this crisis.
- Position sizing
Position sizing helps in determining the loss or profit that a trader can make on the stocks. Hence, if you are looking forward to minimizing your losses, then having a proper positioning tactic is very crucial. The best strategy in today’s scenario will be to make sure that the risk associated with each trade should not be more than 3% of the total amount in your trading account. This means if you have $1000 in your account, you should make sure that the risk associated per trade should not go beyond $30.
- Communicate with your stakeholders
In this time of crisis, you need to keep your stakeholders informed about the ongoing situation of your business. Try to talk to your employees about the current situation and your plans to overcome the situation.
Cash inflow can be a significant issue in this situation. Hence, if you have any debtors, try to get the pending payments cleared. Remember, your debtors would be facing the same financial issues, so consider negotiating new terms. In addition to this, talk to your creditors and inform them about your current situation.
- Contact your bank and insurer
To help people fight the COVID-19 situation, the government has made arrangements that would help people in paying off loan installments as well as insurance payments. Contact your bank as well as the insurance company. Talk to them about these programs. In addition to this, you can even ask them for rebates or approval for the delay in installments.
- Optimizing Leverage
Maximum traders use leverage to maximize their profits. Generally, higher leverage is associated with higher returns. However, in reality, profit and loss are two sides of leverage. This means if it opens the gate for higher profits, it also increases the risk of higher losses. In fact, in leverage, you might end up facing losses more than the total amount invested.
Thus, as a trader, you should try adjusting leverage in a way so that it can accommodate more extensive price movements of the market. Optimizing leverage would help you in preventing outsized losses.
- Open eyes on open positions
Just because the market is in bad condition does not mean that you shut you’re your trading accounts. Nowadays, a lot is happening in the financial market. Things are expected to change further in April. It is time for companies to release their quarterly reports. Regular monitoring of your stocks would help you to take action as soon as there is any new opportunity.
It is better to choose a broker that keeps you informed about all the latest updates of the financial market. You can even use “trade signals forex.” You can select indicators that suit your trading requirements. This way, you will get a notification when the market conditions meet your trading needs.
- Adjust stops
The stop-loss tool acts as a protective shield, which helps in preventing extreme losses and margins. Stop-loss is considered as one of the most crucial tools for Risk-Management. In this crisis, when markets have become highly volatile optimum use of this tool is crucial.
What does the Stop-Loss tool do? Well, as soon as the trade reaches the predetermined level, this tool immediately stops trading. Under the prevailing condition, the right positioning of stop-loss is critical.
One option for adjusting this tool is to widen the stop distance. This would prevent stop-loss from triggering too soon. However, the major issue with this adjustment is that it would increase the risk factor. Especially if the positioning size is not taken under consideration.
Under such volatile conditions, minimizing losses is very important, but so is protecting profits. As a trader, you should adjust stops considering the profit targets as well.
- Use orders
Trading orders are of two types.
- Market order: These orders are implemented instantly based on current prices.
- Limit Order: These orders are implemented when the predetermined price is met.
Under such volatile conditions, a limit order would be a preferable option. One of the advantages of using this type of order is that the action will be taken only when the predetermined price is met. Also, the order will be executed even if you are not active on your account. Lastly, the most important benefit is that the limit order allows you to carry out multiple trades in different markets simultaneously whenever the prospect arises.
- The bottom line
COVID-19 has made markets highly volatile. This is a time when you can make profits or can even face heavy losses. The tips mentioned above can help you in reducing your losses. The fundamental rule is to sit and keep on observing markets. As soon as you identify an opportunity, try using it to your benefit.