Managing the risks in CFD trading should be the Trader’s primary concern as it could be a possible cause of bankruptcy if left unattended. Before starting to set foot in a particular market, it is advisable to ask yourself as to how much risk can you take in the course of your transaction. Prior to the discussion of our topic,it is proper to briefly define the possible risks in the CFD trade so as to have an idea about dealing with your opponent.
Provides an opportunity to look into the market without having to pay the full value of an asset. Leverage may break your wallet in situations where you fund a position margin. The position margins are usually computed via applicable margin rates which are designated by platforms. Risk happens when market rates move against your position. If this happens there is a huge possibility that you will lose a doubled amount of your initial stake.
2. Account Close Out
Your account balance may rapidly change the moment you involve yourself with transactions abroad and transactions done beyond office hours. Such cases happen because of market volatility and rapid shifting of market rates. Your account becomes prone to closure if it does not have enough funds to support these kinds of cases.
3. Gapping and Volatility
Due to volatility of a merchandise, CFD rates may bypass the rates in between them and suddenly move from one level to another higher rate. This process is called gapping.
4. Holding Costs
Not letting go of your position for a long time could cause the sum of these holding costs to go beyond your profit which significantly increases your chance of loss.
Tips on Winning Over The Risks of CFD trading.
Now that we have identified your potential enemies in the trading industry, here are your weapons to win such battle
1.Stop Loss Orders
This gives you a chance to decide between the exact rate that you wish to risk as you go on with your journey. These rates usually come in the form of points. It’s mechanism is pretty easy to follow. Upon opening your transactions, you have to define your chosen value in the trade ticket selection option. This serves as your protection to any loss that you may experience when you have gone past your pre determined price point. Stop loss orders weakness however is its inability to protect a trader from too much volatility and market gapping.
2. Trailing Stops
This is an effective instrument to monitor market flow by means of establishing a price point which is either above or below the market value. Once applied, you will be allowed to lock in your profit as well as lessen losing due to the opposing flow of the market.
Risks are real in the CFD industry and neglecting them could ruin your trading life. Despite the presence of instruments that help alleviate the occurrences of losing, it still pays to assess your previous trading style to refine your craft. Be reminded of the saying that CFD Trading is very similar to a chess game. You must move in order to win. And in order to determine which move to make, you must have insight and knowledge. It is only by living through this philosophy where you get to be capable of winning over the possibility of losing.