In 2021, online CFD trading becomes more and more attractive, as it’s an easily available entrance to the world of trading without entering authorized exchanges, and it seems easy. The reality shows, though, that up to 90% of traders lose all their investments within the first months, and most of them never return. How does one avoid the traps responsible for this casualty rate? Let’s see the ways of reducing risks.
None of them is, in fact, a secret to keep. Every single method is well-known, but it’s all ignorance and false confidence that get people to neglect these rules. So we are not here to reveal the truth but to highlight it.
Choose the Right Platforms
It’s probably the first and the most important rule of trading. If you choose your broker poorly, the rest of the rules won’t help. So, what should you pay attention to when choosing your platform?
- There should be no issues with withdrawal. Otherwise, the rest does not matter.
- The service should operate in your country legally, have a mailing address and phone support (24/7, other things being equal). It may also mean that the interface is available in your language, which makes trading way more comfortable.
- The platform needs a mobile app that lets you be aware of market trends whenever you need, wherever you are.
- A demo account is a must. It will let you understand whether you feel at ease with this platform.
- Transfer methods. They should be comfortable for you, both for depositing money and withdrawing it.
As for the software they use, it can be either a third-party solution (like MetaTrader 4) or proprietary ones. The advantage of MetaTrader 4 is about making a transfer between brokers easier. Proprietary software, though, can suit your needs better. Anyway, if you don’t feel comfortable with any particular platform, it won’t let you unleash your potential.
Hedge Your Positions
According to Investous it’s the most common way to secure most of your position. If you’re not sure whether any particular asset will rise or fall, you can keep both short and long position. Whatever happens, your loss on one of them will be recompensed by the other. It’s a good way to keep your stable set of positions, but if you feel you see the trend, you should get rid of the one you think will bring you losses.
Use Stop Loss Orders
Minimize your potential losses by stop loss orders. With a stop loss active, your position will be automatically sold as soon as the price reaches a certain level, after which your loss becomes unacceptable. These orders will not bring your lost money back, but they will keep your bad luck from falling into disaster.
Be Careful with Leverages
You’re getting a bit high when you acknowledge that you can deposit as little as $200 and operate as if you had $10,000 – or more. But don’t let it get you too high. If you fall, your losses will multiply, too – according to the leverage you use. So you better not deviate from real numbers too far.
Form a Strategy
There are few things more dangerous than acting chaotically. Form a strategy based on trends you foresee: for example, if you think that the price of oil will rise and that of Bitcoin will fall, keep respective positions open. Or give some time to play short-time and react to any price changes that you think will last for a few more minutes. The most popular ones are sort of two opposites, you can:
- Predict the trend and choose a point where selling or buying will make enough sense for you.
- Predict the end of the trend and buy before it starts growing (or sell just before it starts falling).
These strategies are quite common for trading, but there are some special things about CFD. For example, unlike generic futures that exist until a certain moment, CFD can exist virtually forever. This means, in your strategy, you better operate long terms and periods – or take higher risks. To predict market trends, you better focus on long-time predictions concerning the real world and real assets.
Not that we intend to foster your FOMO, but online trading is as much “online” as it is “trading.” That is, you should be sure to receive any notification or alert at times you spend working on the platform. Power issues in your house? No Internet? Riding in the countryside with no cellular coverage? No matter if you miss the alert, it may cost you more than you think. So, when you plan to spend some time offline (or go on vacation), make sure all your positions are well hedged. So whatever happens, you won’t lose much.
Don’t Let It Get You Down
Failures are inevitable; just face it. You will not make the right decisions all the time you need to. Sometimes you will fail. But it’s not infallibility that makes a good trader. It’s the ability to win more than you lose, to keep to your strategy and make it work, to understand the difference between trends you ride and deviations you ignore.
Staying stable is the key. One loss is no reason to get depressed. If it happens while you have been acting wisely, it only means you lose a part of your investments. Just prepare yourself that this may happen at any moment, and it’s not the end of the world. Neither does it make you a miserable trader. It’s just an unlucky moment.
If these moments repeat, though, it may mean something is wrong with your strategy. Not the most pleasant thing to admit, we know. But again, you are a human, and errare humanum est. Take this as a lesson and your loss – as the tuition fee.
Don’t Deposit Too Much
This rule does not need much explanation. If you are just a beginner, you better start with investing a sum you earn for one average day (if your trader accepts such deposits). Not much to regret, enough to taste the success.
The most dangerous thing in trading, though, is not risking at all. If you avoid placing your bets, your deposit will slowly melt with inflation, inactivity fees, and other potential issues. If you keep all your positions hedged, nothing too bad will happen, but nothing good as well. So, you’re risking by the very fact you’re registering. Accept this and get ready to ride.
If you have something to add, you can do it down here in the comments. Or share this on Facebook or Twitter to start a talk with your friends and reveal your experiences. We wish you all good luck!