CFD or Contract for Difference is an increasingly popular financial instrument amongst expert forex traders and financial market enthusiasts. CFD trading commodities, stocks, indexes, treasuries, currencies, and sectors are possible without owning any real assets. This lets traders start speculating on the price differences without having a trading capital. The negative side of a low entry threshold is the haste that leads to various mistakes. In this article, Investous.com trading experts explain the most common mistakes CFD traders should avoid in their campaigns.
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 senseless 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 totally 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 mechanical step-by-step 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. Rush
The desire to make money fast is another problem of inexperienced traders. Many CFD newcomers 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. You should take your time to get used to the instrument and gain enough experience before taking a big risk and trading with high leverage.
4. Overtrading
It’s really fun to see how your account grows, isn’t it? 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. Trading Without Stop Loss Orders
Stop-Loss Orders are provided by all reliable CFD brokers 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 for that is a must for every trader.
6. Using Too Much Leverage
Most trading platforms don’t allow you to trade without any leverage, but you still can keep it at the lowest point to minimize potential losses in risky positions. Many inexperienced traders start using high leverages too early and face multiplied losses as a result.
Trade Wisely
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 keep learning new facts and trading techniques every day. Otherwise, there’s no chance to make large profits.
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