Trading through the global financial markets has never been easier, thanks largely to technological advancement and the emergence of accessible, online brokerage sites.
Just because the financial markets now more accessible, however, this doesn’t mean that you’re guaranteed to operate profitably or achieve your core objectives. To achieve long-term success, there’s also a pressing need to diversify your portfolio over time, as this helps to spread your risk and generate significant returns over time.
In this post, we’ll look at how you can create a strong portfolio and what elements contribute to long-term success as a financial trader.
- Build a Base Using Knowledge and Understanding
Whilst it’s important to diversify your interests and create a broad portfolio, you should avoid doing this simply for the sake of it.
After all, you should always base your trades on knowledge and understanding of specific markets, as this enables you to make informed decisions that translate into long-term profitability.
This is why every successful portfolio is built on one or two core assets, which enable traders to become profitable, continue to learn about specific markets and diversify with new assets classes in the future.
This requires a patient and strategic mindset, and one that remains focused on long-term profitability.
- Hone your Skills with a Demo Account
When the time comes to diversify your portfolio and introduce new asset classes, you should also consider creating a contingency plan that enables you to identify the best trading strategy.
More specifically, we’d recommend using a demo account to experiment with different assets and create viable strategies that can work in the corporeal marketplace.
After all, the type of demo account provided by Oanda offers you access to a virtual market that simulates real-time conditions, so you can hone your practical knowledge whilst understanding how best to trade specific assets.
This is a great way of offsetting any potential risks and diversifying your portfolio in the most effective way.
- Introduce Assets That Complement One Another
Whilst you may start out by trading assets that you know and understand, over time it’s important to create a portfolio that’s well-balanced and capable of delivering viable returns.
It would be unwise to create a portfolio that’s reliant on derivative assets that are traded by margin, for example, as these tend to be volatile and capable of delivering margin-based profit and loss.
So, if you trade currency as your core asset class, you should consider introducing stocks, securities and precious metals in order to create a more secure store of wealth within your portfolio.
This type of asset will deliver more consistent and reliable returns, which can sustain your portfolio and allow for more expansive investments into currency and similar derivatives.