A CFD (Contract for Difference) is one of the most popular financial markets that are traded online today. So much money is traded everyday by basically speculating on the rising and falling prices of the common fast-moving financial instruments like indices, shares, currencies, commodities as well as treasuries. It is however a very risky affair and a simple wrong move can leave you counting huge losses in the end. The same way, a right move can leave you enjoying great profit on your investment. That is why you should know about some avoidable mistakes that might leave you counting losses, and then you can be well prepared to avoid them.
1. Working without a plan
You need a plan to be successful in this trade. You also have to ensure that you are following through with your trading plan. You have to plan beforehand so as to know the kinds of instruments you will trade in, the maximum amount of money you will invest in it, how long you will be holding positions, the strategies you will use in trading among other things..
2. Going in blind
There are many factors that affect the prices of financial instruments like shares, currencies, commodities, indices among others. You have to understand all these and how they affect the price of the instrument you are trading in so as to bet wisely. Some of the factors to look out for in this case include weather and politics.Overtrading
The huge profits that one is likely to enjoy from CFD may push one to place more money than they are willing to lose on a single trade. This is a mistake, even if you are absolutely sure that the price will go the way you anticipated. What traders need to know is that CFD markets are very unstable and this means that prices can change to any direction abruptly. There is no sure way to tell how the outcome will be.
4. Not using stop orders
You need to use stop orders for proper risk management considering how risky this kind of trade is. Fortunately, these are some of the risk management tools that are readily available for CFD traders. They will help a lot in minimizing your losses.
5. Emotional trading
This happens when you start thinking of just how much money you have lost in the previous trade and how much you can recover in one or a few trades. In this case, your plan is kept aside as you try to grab as much as you can to compensate what you have lost. To be a successful trader, you need to stick to the plan even when you keep making losses because bigger winnings are always around the corner.
6. Opening too many CFD positions
This happens a lot especially when a trader is looking for a provider that is offering the lowest margin. What happens, in the end, is that you use up all your capital without a single profit.Ignoring the risk in the trade
7. Ignoring the risk in the trade
Many traders concentrate on the profits they are likely to gain without thinking about how much they can end up losing in a trade. In most cases, traders will place a trade where they are likely to gain lower than what they could lose. If you do this for most of your trades, you end up losing all the money in your account.
Everyone makes mistakes, even a trader who has been trading for years. However, being aware of some of the common mistakes that may leave you counting losses can help you make better decisions once you start trading.