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CFD Risks

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What are the risks of CFD Trading.

As with all kinds of financial trading, it is important to the risks associated with CFD Trading. Having an in-depth understanding of these risks is integral to successful trading and incurring minimal losses. All areas of financial trading are essentially a gamble. While it is possible to make large profits, it is also possible to incur losses. Always make sure you are in the right frame of mind to trade – do not trade out of boredom or overconfidence – and make sure you have done as much research as possible into your chosen market before you begin.

There are three main areas of risk associated specifically with CFD Trading.

  • #1 CFD Risk:  Using Leverage.

Leverage is the use of borrowed money to increase the potential return of an investment, and while this can be an incredibly lucrative tool to capitalize on in CFD Trading platform, where its use can maximise earnings, it can also increase your potential losses. This means, when an investment doesn’t go your way, you can stand to lose more than your original deposit.

 

Minimising the Risks:

The obvious way to minimise the risks of using leverage is not to use them. While your profit margins might be smaller, so are your loss margins. If you understand the risks of leverage and want to use them anyway, always make sure you can afford the maximum losses. Often a large percentage of leverage will be available to you, remember you do not need to use the maximum amount to benefit from it.

 

  • The CFD Risk of Close Out.

This can affect you both if you haven’t don’t the required research into the market you want to trade in, and if you cannot monitor your trading options throughout the day. If you are trading in a volatile market or if there is a rapid change in price while you are not monitoring your trades, there is a risk your positions might be closed automatically. This can cause you’re to incur significant losses.

 

Minimising the Risks:

Always ensure there are enough funds in your account to cover the total margin requirements. Also, ensure you are familiar with all the usual fluctuations of your chosen market so you can monitor your investments at peak times of volatility. Have as much information as possible on the markets you are trading in will always go a long way in minimising losses and maximising gains.

 

  • Holding Costs.

Not being aware of potential holding costs before you start your journey into CFD Trading can cost you. Holding costs are dependent on the positions you hold and how long you hold them for, and can sometimes exceed any potential profits and significantly increase your losses.

 

Minimising the Risks:

Holding costs are applied daily, be aware of the timings of your market of choice and what time zone they adhere to. Make sure you have done the required research to ensure you know how much you will incur through holding costs.

 

Remember, only trade with what you can safely afford to lose.

 

 

 

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