Risk has never been an uninvited guest in any trade. The majority of individuals who venture into the Singapore retail market as first time buyers are influenced by the positive side of the story, as they are lured into the business by the tales of swift profits and bold calls that are being discussed in the trading communities on the internet. What follows, often painfully quickly, is that the real skill resides in dealing with the downside. That lesson is informing an increasing number of players in the retail sector in the city-state on how they treat the markets with a much greater degree of caution than they initially did.
One of the first disciplines that serious traders develop is position sizing. The general trend among those who remain in the game long enough is a shift from trading on conviction to trading on how much they can afford to lose on any one position. Traders who used to invest 30 or 40 percent of capital in a single set-up typically withdraw to single-digit percentages following some painful experiences. Such an adjustment is not a result of reading a textbook. It is the result of seeing an account decrease at a rate that is not anticipated in case of a trade that is moving in the opposite direction.
CFD trading brings forth a certain type of pressure, which is not present in stock investing. Since positions are leveraged, there is less distance between a manageable loss and a catastrophic one than it seems when a trade is initially opened. A Singaporean trader trading with a 10:1 leverage ratio on a currency pair can lose twenty percent of the capital invested in the position with just a two percent move in the wrong direction. The seasoned players are aware of that. Newer ones tend to learn it in mid-trade, a more difficult means of learning.
Stop-loss orders have become commonplace with the retail traders who take the market seriously. The principle is simple: set the exit point before entering and the platform will do it automatically if the price reaches the specified level. The psychological challenge is that sometimes a stop is hit just before a reversal and so a trader loses a position that would have been recovered. That experience makes people want to broaden their stops or even eliminate them completely, and it is at this point that discipline becomes the most important.
The Monetary Authority of Singapore requires brokers to disclose risks and in most instances, negative balance protection, i.e. a client cannot lose more than the money in his or her account. How important that protection is is not as well known among new traders as it should be. The markets may widen considerably by the end of the night or on a big announcement and without that kind of protection, one event can leave a person in debt to the broker instead of merely a drained account balance.
CFD trading has a mental aspect on top of the mechanics, which platforms and educational materials seldom discuss with honesty. Losses in succession have an influence on judgment that is hard to predict. The trader who has a well-planned strategy that he has followed over weeks can ruin it in an afternoon when he is chasing a loss and decides to add to his position to get the money back in a short time, and make it all worse. This is what professionals call revenge trading and is responsible for a disproportionate number of the large losses that retail traders incur.
The retail trading fraternity in Singapore has evolved to a level where these discussions are taking place publicly. The discussion of risk frameworks, emotional discipline, and realistic expectation of returns (as opposed to tips and predictions) now appears in forum posts and Telegram groups. That change of tone is indicative of something: More players are prioritizing longevity in the market over the next trade.
