New to Stock Trading Here's How to Control Your Risk

Copyright (c) 2010 John Howell

Getting started in stock trading can be nerve-wracking for a new investor. On the one hand, you want to jump in and start seeing your portfolio make money, but on the other you don't want to lose your hard-earned cash.

Here are a few ways to control your risk when you're new to stock trading.

Be sure you're ready - Don't even think about investing until you know you're absolutely ready. When you're new to stock trading, be sure you have all of your other financial bases covered before you jump in. Try to have at least six months savings in the bank and cushion your investment account with an interest-bearing CD or money market account.

Insurance is also a good thing to have when you're new to stock trading. Be sure you have each of these things in place first.

Could you sell it? - When you're new to stock trading, you should never purchase a stock or invest in anything that you don't feel you could turn around and sell. This is one way those who are new to stock trading end up making false moves. Avoid it by not buying anything you feel won't sell later or that you're somehow emotionally invested in.

Know when to hold back - Investing aggressively should only be done in the short term. When you're new to stock trading, you want to hit the ground running, but a good way to protect your money is to be aggressive in the short term and conservative in the long run.

Stocks are great for achieving long-term goals. Short term goals - meaning less than 3 years - are better for investing through CD's or money markets.

Go with your gut - Never invest in something you don't feel 100 percent sure about. Even when you're new to stock trading, if a certain stock or investment makes you uneasy, don't go for it. Explore all of the stocks' strengths and weaknesses before you make a decision.

While it's true that with great risk comes great reward, you should never take major risks with major chucks of money. It's one way to look smart even when you're new to stock trading.

Finally, always be on the lookout for scams when you're new to stock trading. Only deal with legitimate, well-established firms (if you choose to go that route), don't ever buy what you don't understand, and remember that if a deal is too good to be true - extremely low-priced stocks or investing in precious metals comes to mind - it probably is.