18 June 2021

Avoiding The Most Common Mistakes When Trading CFDs

CFD or Contract for Difference is an increasingly popular financial instrument with online traders and financial market enthusiasts. CFD trading commodities, stocks, indexes, treasuries, currencies, and sectors are possible without owning any tangible assets, which means reduced costs and the availability of leverage. CFD trading allows investors to speculate on the price differences of an asset without having a large amount of trading capital. The negative side of a low entry threshold is the haste that leads to various mistakes. In this article, we will try to point out the most significant errors to avoid.

1. Lack of Research & Strategy

Many inexperienced traders dare to speculate on assets that they don’t know well enough. The lack of research leads to irrational buy-and-sell decisions. You have to know bost historical and current trends for every CFD asset you plan to buy and sell, or the outcomes will always be unpredictable. The market is not a casino, so you can’t start trading without a comprehensive strategy.

2. Emotional Trading

If you decide to become a trader, your emotions should become your biggest enemies. Even if you have a strategy that requires only step-by-step mechanical performance, you should avoid trading when you feel stressed, depressed, or else because emotions might lead to impulsive decisions and cause losses that you could have avoided in your normal state of mind.

3. Rushing the Trade

The desire to make money fast is another problem of inexperienced traders. Many CFD new comers choose this instrument to make money faster than it’s possible on the stock exchange. CFDs do allow faster revenues, but not for those who hurry to get them. It would be best if you took your time to get used to the instrument and gain enough experience before taking a significant risk and trading with high leverage.

4. Overtrading

It’s enjoyable to see how your account grows. The wish to make more money becomes stronger and stronger! However, you have to tame it and avoid opening trades you are not confident enough about. If you do, you may waste all your gained profits in just a single turn. Always wait for appropriate positions to come, and don’t trade at all if you don’t see any.

5.Understanding The Process

Orders are how traders interact with CFDs and make their trading intentions known. Suppose you want to buy a CFD position in oil on the logic that reductions in supply will lead to higher prices. This goes from being a reasoned, researched concept into an actual trading position via an order, which is the instruction to buy placed with the broker by the trader. Orders can be made to build up a sophisticated structure of automated trading decisions and play the primary role of interaction with the markets and allow traders extensive flexibili ty to establish in - depth conditions to attach to each trade. There are several different order types you’ll come across during your time as a CFD trader, and knowing what each of them means and does is an essential step towards implementing them in your trading. Remember that orders represent the only tools of the trade you have in terms of interacting directly with the markets, so understanding what they do and when you should be using them becomes a crucially important consideration.

6. Trading Without Risk Management

We offer several stop - Loss Orders to let you close positions automatically when the price starts going against too fast. It can be impossible to react in time, so using automation is a must for every trader. The stop order, known as stop - loss, works similarly to limit orders. It allows a trader to decide on the level that they think that their trade will not go according to plan and close the position before incurring further losses. The stop order is a command to the platform to execute a buy or sell, depending on your position, at a specified market price. Where stop losses are a fixed baseline against which your position is protected, trailing stops are a much more flexible, albeit similar, creature. Instead of fixing at one defined point, trailing stops move in line with the market, but only insofar as it benefits you to do so. When markets move in your favor, the trailing stop is lifted, and where markets move against you, it locks in place to deliver the stop loss effect. Stop - loss orders reduce the risks taken in CFD trading and can help to provide traders with discipline.

7. Blindly Trading Signals

One of the most challenging aspects of being a trader is continually developing your own trading ideas time and time again. Conducting fundamental and technical analysis can get tedious for even the most disciplined traders, and when your concentration slips, it can lead to costly mistakes by entering sub - optimal positions. A great way to get away from the monotony of finding your positions is to follow trading signals. With that being said, it’s crucial to note that the best signals are only alerts and guidance. Do not just make a trade because an alert tells you to do so. Conclusion Like any other financial instrument, CFD requires a thoughtful and moderate approach. Otherwise, you are at risk of losing more than you earn. You have to be in a permanent learner state of mind and learn new facts and trading techniques every day. Otherwise, there’s no chance to make large profits. In general, experience and knowledge are the most important aspects of CFD trading. The onus is on you to acquire information and determine the best course of action at each given time. Just be mindful of the pitfalls listed above.

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CFDs are complex products and have a high risk of rapid loss of money because of the use of leverage. 86.68% of retail investor accounts suffer capital losses when trading in CFDs with this provider. You need to evaluate if you understand how CFDs work and if you can cope financially with the high risk of losing your funds.Please note that currently, the Company does not accept any new clients.