Understanding About The Losses In Trading

Understanding About The Losses In Trading

You need to come in terms with the reality that some point or the other you will lose some of your money. It is undeniable that it would happen sooner or later. It would have already happened to you and you might not have realized that as the losses could take different forms.

The simplest form and the most painful one are to buy the stock and then watch the price going down. You decided to end this pain by selling those shares. This is the kind of loss which is known as a capital loss as it involves the actual dollar amount.  Similarly, even trading in cryptocurrencies too one can incur a loss, but the loss incurred is a rare occurrence as the sophisticated trading software like bitcoin code takes calculated decisions using mathematical algorithms. Learn more about it here.

Different kinds of losses faced by the trader

Lost opportunities –This is another kind of loss but they are very much real. For instance, you bought a hot growth stock but after going through few ups and downs, one year later, if the stock is still at the value which you paid for it, then you are facing a lost opportunity. If you would have bought some other financial instrument, you would have earned interest for a year.

Paper losses- You keep telling yourself that it is a paper loss and you haven’t lost anything, then, in reality, you are making a mistake. You would be in a belief that the organization’s long-term prospect is still well and it would be great to just hold on to it.  But this paper loss would turn into a lost opportunity as you are missing out in earning profits if you would have invested it elsewhere.

Missed profit losses- This happens when you have to watch the stock moving up significantly and then falling back instantly. It happens for those stocks that are volatile in nature. The money you could have earned if you would have sold those stocks when it was at the top is called the lost money. Most of the investors try to sit tight and then hopes that the stock will recover soon but it actually never happens.  Even if the price starts increasing again, the investors will try to hold on hoping to earn greater profits just to watch the stocks retreat again.  The only cure for this to be happy with reasonable profit so that you don’t risk the price retreat.

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