Small and new investor make many mistakes. One of the biggest mistakes for an investor is to start trading options instead of stocks. The mentality of a small investor is to take their small investment account and go right into the options market. They do this because options tend to give the biggest returns. The common thought process is that the new/small investor can grow their account quickly. However, with big returns is mega sized risk. There is literally no way a new investor with no experience will have control of their emotions and be able to handle the crazy moves in the options market.
The combo of inexperience and risk in options trading equals losses. So a new investor with a small investment account makes the biggest mistake they can. The key here is the ‘get rich quick’ scheme. They want to turn their $2,000 investment account into $100,000 overnight. 99.9% of these accounts will go bust.
The smart decision is to build it slowly. Turn that $2,000 account into $4,000, then $8,000, then $16,000. Add money and compound the gains. While it takes longer, it is the safer way. In addition, this method had a high success rate. While I can preach this until I am blue in the face, most newer investors cannot keep the lure of fast money down.
Wisest advice I have ever given? Have realistic expectations and understand that building real wealth takes time. Invest/trade stocks instead of options. Options should only be used on fun money and as a hedge. For example, my personal options account is 1/10 of my swing trading account. Inside of that options account, I put only 2% of that account in each options position. I fully understand the risks and there for I only commit a tiny amount of money to options. This is what smart money does…
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