How to Lose Money on the Stock Market

By: Georgie Tylor
For rookie investors, the stock market can be an exceptionally risky place. While the long term gains of investing can be very high, buying shares without doing your homework in the belief you'll make quick returns will leave you disappointed and sometimes out of pocket. There are plenty of magazines and websites out there that will point out 'dead cert' gains and suggest making money stock trading is anyone's business, but few that will point out the basic pitfalls of many rookies. If you're looking to invest, but not aware of the risks that the stock market will present to you, then take a read of this article to see the easiest ways to lose money on the stock market.

Trading for Short Term Gain

Becoming a day trader and making speculative trades on the value of shares is effectively gambling, and really only profitable for your broker. Every time you make a trade, you'll be paying a broker fee, which means you'll need to make a certain amount back before you break even. By not trading daily, you'll cut out this fee, lose an element of speculative risk and generally be in better stead to make even larger gains over the long term.

Following Bull Markets

When investing, you will hear of bear and bull markets. The former refers to a market where trading is low, because people are wary of prices, while the latter refers to a market where trading is high and the price is beginning to soar. The clearest example of a bull market in recent times is in commodities, with many FTSE 100 listed mining stocks charging up more than 50% in twelve months. It's easy to spot the top performing shares, but it's not always easy to put your money in at the right time. Too many rookie investors see a share that has risen, and then put their money into it on the premise that it will rise higher. Some people refer to this as 'bull market baloney', because if a stock has risen to very expensive levels, why should it continue to rise higher? There's always a ceiling to stock prices. By following bull markets, you'll probably buy stocks at highly inflated prices, and then suffer if the market runs out of steam. The commodities boom in Britain has done exactly that, losing the 50% of value that it chalked up last year. If you went in at its height, you'd now be much worse off.

Investing in Just One Company

Another one for gamblers only is to put all of your eggs in one basket and speculate on the price rising fast, leading to potentially massive gains. At the moment, a lot of people are doing this on ultra volatile bank shares. The problem is, that while it is possible for prices to rise, will you ever be able to time your trade right and pull all your money out? With this kind of speculation, you lose out if you sell and the price rises, or if you buy and the price falls, so it's incredibly risky. Instead of opting for this kind of volatility, which will probably end with you unable to sleep at night and making a catalogue of bad trading decisions, spread investments over the long term in something like a unit trust or diversified portfolio. For more on unit trusts, take a look at Legal and General.