Common investment mistake No 5 By Darren Winters
Using too much leverage - (i.e. using more money than you actually have!)
There are many different ways to get leverage in investing. The obvious and fairly risky way is to borrow money from a bank, friend or anyone else who will lend it to you and then trade with it – the plan being to make enough profit to pay back the loan and have money over to continue investing. I have heard a few stories were this has worked tremendously well, but I have heard far more stories where this approach has ended in disaster! Other ways to get leverage include CFD’s, Options, using margin with a spread betting or brokerage account. All of these tools are extremely useful and valuable if used in a sensible way – however if used to stretch your money to it’s limits, in the hands of an inexperienced investor, leverage plus one or two losing trades, can very quickly eat away your money.
How to Avoid: Using too much leverage -
When you start investing with real money start with just part (not all) of your investment capital – this way if you make any mistakes, the lesson won’t have cost as much! Once you have been making good profits on a fairly consistent basis, you may choose to increase the amount of money you are investing. Having said all of that, I have just received a letter from one of my training course graduates who applied the investment strategies that I teach WITH leverage and turned £1000 into over £100,000 in less than 3 weeks! I guess if you are prepared to take a higher level of risk, the rewards can be very big.
Regards Darren Winters
There are many different ways to get leverage in investing. The obvious and fairly risky way is to borrow money from a bank, friend or anyone else who will lend it to you and then trade with it – the plan being to make enough profit to pay back the loan and have money over to continue investing. I have heard a few stories were this has worked tremendously well, but I have heard far more stories where this approach has ended in disaster! Other ways to get leverage include CFD’s, Options, using margin with a spread betting or brokerage account. All of these tools are extremely useful and valuable if used in a sensible way – however if used to stretch your money to it’s limits, in the hands of an inexperienced investor, leverage plus one or two losing trades, can very quickly eat away your money.
How to Avoid: Using too much leverage -
When you start investing with real money start with just part (not all) of your investment capital – this way if you make any mistakes, the lesson won’t have cost as much! Once you have been making good profits on a fairly consistent basis, you may choose to increase the amount of money you are investing. Having said all of that, I have just received a letter from one of my training course graduates who applied the investment strategies that I teach WITH leverage and turned £1000 into over £100,000 in less than 3 weeks! I guess if you are prepared to take a higher level of risk, the rewards can be very big.
Regards Darren Winters
posted by Darren Winters at 10:58 AM
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