High-risk investments are enticing, and they allow investors to make substantial gains on their investments. But with high-risk investments, you can also suffer from substantial losses. The goal is to be able to manage these risks so that you don’t suffer from losses that put you in the negative.
Managing risk is possible, if you follow these tips:
1. Stay Away from Leverage
When using a trading platform, you may be tempted to use what’s called “leverage” to make a larger trade. Perhaps you have a feeling or insight that a certain investment will go up or down, so you take out leverage to invest more money than is in your account.
Perhaps you can use leverage to make a 1:10 “bet,” and then your $1,000 position is now worth $10,000. If your position doesn’t go in your favor, you’ve lost a significant amount of money in the process.
2. Use Stop-Losses
If you’re dabbling in forex online, use stop-losses to be able to exit a position before you end up with a loss. The stop-loss is a safety net and should be used to act on your behalf when you’re not glued to the screen trying to determine which way a position will go.
Stop-losses or other safety nets should be incorporated to stop potential losses from piling up.
3. Avoid New, High-Risk Opportunities
Imagine being the investor that put all of their capital into Bitcoin before it plummeted from $19,000. One trader from China recently committed suicide when he decided to bet 2,000 Bitcoin on a high leverage position of 100x.
The investor couldn’t deal with the loss, and he is dead because of it.
High-risk opportunities that are new and not understood should not be your go-to option if you don’t have your money properly diversified. The problem with high-risk investments, such as Bitcoin, is that they rise on the industry hype and are too volatile to bet your entire future on.
4. Invest Money You Can Afford to Lose
Do not put your entire savings into an investment with the hopes that you’ll become rich. A major risk is putting money that you cannot afford to lose into an investment. If you need the money to pay your bills, do not invest it no matter how promising the investment looks on paper.
Invest the money with the idea that you can live without it if the investment goes sour.
If you make money off the investment, good, but if you don’t make money, you won’t be putting yourself into debt in the process.