by Len Rogers

Created on: October 01, 2008   Last Updated: October 07, 2008

Attitude to risk governs trading policy

Choosing an online stock broker requires considerable investigation and comparative research. You should devote a whole day to surfing the net screening available brokers with your essential requirements. Fundamental to all your on-line trading is your attitude to money and your understanding of risk. You must assess your tolerance to risk, which is an innate characteristic built up over the years since birth, and appreciate the risk in each market. Personal risk tolerance cannot be changed, so you must understand your attitudes in making and losing money. To make money, you have to accept losses; some people will never be able to trade as they cannot accept that. This will influence the type of broker you choose. Trading risks vary from highly volatile and speculative instruments to relative stable funds.

Online trading risk

Market Degree of Risk

Currency Highest risk level 10

UK/US Futures, Options, Derivatives

US Equity options High risk level

UK Spread investing approximately 8

UK Penny shares

US NASDAQ stock

US S & P 500 stock Medium risk level 6

US DOW 30 stock

UK AIM shares

UK Equity options Low risk level 4

UK FSTE 250/350 shares Low risk level 2

UK FTSE100 shares Lowest risk level 1

Traders and investors

Investors and traders are different animals. Investors generally take a long-term view of the market and are more interested in companies, their governance and management, the products and services offered, markets in which they operate and the bottom line. Traders generally take short-term views and are only interested in one thing can the asset return a profit if bought or sold? They are like dealers in antiques that have little interest in the intrinsic quality, design, and workmanship of the article, only in the price it might fetch to collectors.

Analyse and compare brokers' ads

Consider the type of brokerage whether general or specialist, the services offered, minimum trading terms, even the way your initial enquiries are dealt with. Read their sales literature and compare how it relates to your basic attitude to risking your money trading on-line.

Knowledge has no shelf life

The basis of your decision must be knowledge. Knowledge is cumulative: every piece of research contributes to the total corpus of information. Obtain as much information as possible about the broker. Ask friends if they have any experience of trading, or use a broker; search on-line for information on trading in stocks, brokers, brokers' associations,

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