Avoid Common CFD Mistakes

By putting in the effort to understand the mechanics and terminology of CFD trading and knowing how to use your trading platform you will be able to avoid many of the most common mistakes. Most of the others can be avoided by taking care when placing and amending orders and keeping it your emotions in check.

Most importantly, you should not make the mistake of placing trades to the limit of your funds. The leverage you can get with CFDs, whether trading indices, shares, currencies or other financial instrument, is a friend when you make the right trades but is your enemy when you have a losing position. When entering any position, you should always calculate how much you stand to lose if it turns against you, and make sure that it is something you can live with. Many traders try to limit their possible losses to 1% or 2% of their account on each transaction, which may sound like a small amount but ensures that a run of losses will not end your trading career.

Another trading mistake is to think that you must always be active, and have open trades in order for your money to be working for you. Sometimes the market will not have a good option, and you should not be concerned about standing on the side-lines and waiting for the right opportunity. This is a far better option than making trades that compromise your selection criteria.

A common CFD mistake is to be emotionally attached to the funds that you are trading with, so that you cannot think clearly about what you are doing. You should never trade with funds that are needed for a particular purpose, such as paying the mortgage, and if you can maintain a detachment from them you will be a much better trader. You must realize that you will not get every trade right, but that trading is a percentage game where you want to stack the odds in your favour.

For good reason, there is a lot of emphasis in trading circles on the psychological aspects of trading. Until you trade with real money, you will not appreciate how hard it is to stay focused on your trading plan, and to avoid the effects of fear and greed. With a succession of winning trades, you may become excited and believe that you can't fail, which can lead you to over trading to satisfy your greed. Fear can work to make you take your profit too early, as you fear a reversal, and you can also become desperate from fear of having to tell your friends or spouse when you have a losing run.

The majority of people who take up trading fail and give up in the first six months. If you can avoid common CFD mistakes, educate yourself in the markets that you are trading, and approach trading as a business, then you will be able to avoid becoming another one of those statistics. CFDs are an excellent vehicle for trading profits, as long as you treat them with respect and understand their advantages and disadvantages.