CFD-Trading (1)

What are the most common reasons why traders end up committing mistakes? Let us tell you, just as success in forex is influenced by a combination of factors, mistakes are also governed by not one but a number of factors taken together. Failure in forex is primarily attributed to the lack of preparation, discipline and knowledge. If you have just forayed in CFD trading then make sure you are not committing the common mistakes as listed below.

What are the most common mistakes committed by CFD traders?

As long you are not able to identify the mistakes that are repeatedly committed by traders it will not really be possible for you rectify them. Listed below are a few of those mistakes. Make sure you are prudently going through them and avoiding them as well.

Do you even know the reasons why you are trading?

Most of the traders today make an entry into the forex market primarily for making quick money – preferably from day one. Irrespective of whether you are trading CFDs or traditional stocks, you will find that most of your fellow traders have forayed in CFD trading primarily because they find trading “entertaining”. The right approach, would, however, be to treat forex as a serious business. People, who treat it as entertainment, are more likely to lose money because their trading moves are not backed by solid strategies or trading plan. Get your attitude right before you start trading.

High leverage

One of the most common benefits of CFDs is that traders are able to secure exposure to a foreign exchange contract even with a very small capital outlay. In fact, you can gain entry into the market with margins as low as 5% or even less than that!!!

A small example will help you understand how you can expect high returns with such a small deposit. If you are trading with a 5% margin then you are actually entitled to leverage the initial outlay by 20 times. It is true that since only a fraction of the trade’s face value is outlaid, even a minor change in price can actually lead to substantial gains. However, let us remind you that the same degree of change can result in substantial losses too. CFD traders who are too excited to trade with high leverages must remember that leverage, if not managed properly might as well lead to major losses.

Propensity to overtrade

This is something most of the new traders are guilty of doing. The most worrisome aspect of this trend is that traders are not even willing to wait for a clear market trend to emerge even after a piece of news surfaces. It is very important on your part to understand that you cannot leverage your positions fully simply because you have access to free equity. Don’t be too eager to put a very high amount of money at risk- an amount which you cannot afford to lose in any way!

Please make sure you are finding out more about cfd trading at CMC Markets.