Arjun Tandon shares essential trading tips: Diversification, risk management, and leverage strategies

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Arjun Tandon, partner at Kailasa Capital Advisors LLP and a full-time derivatives trader, gave four sets of advice to traders in the Trading Right event organized by Groww in Mumbai. These advice include diversification, risk management, and using the right leverage.

Here is what Tandon says:-

Diversification is essential not only in investing but also in trading. Traders can diversify by engaging in different indices, such as Nifty and Bank Nifty or Sensex, which reduces dependency on a single index’s performance. Additionally, blending long and short strategies adds resilience to market fluctuations. Diversification can also be achieved by using varied timeframes, combining intraday with positional trades, or diversifying across asset classes like equities and commodities.

A key principle in risk management is to think in terms of percentages rather than absolute amounts. For example, if you start with a capital of Rs 50,000 and face a Rs 25,000 loss, this 50 percent loss requires a 100 percent return to break even.

Maintaining sufficient capital in your trading account is crucial to prevent being sidelined by margin shortfalls. Ideally, traders should set aside at least 2-2.5% of their capital to cover margin requirements, reducing the risk of being forced out of trades due to insufficient funds.

Specifically allocated - Funds designated for trading should be strictly allocated for that purpose alone. It’s essential to avoid using money that has been earmarked for other financial commitments.

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