Many investors know that trading with CFDs has a unique set of risks. In general, this activity is considered safe, provided that you follow certain rules and have the necessary skills and tools. In this article, you will learn the main risks of online CFD trading and how to secure your money.
High Volatility
Price fluctuation (or volatility) is a characteristic feature of the CFD market. On the one hand, it provides great advantages and the possibility of quick earnings. On the other hand, it can lead to colossal losses. The higher the volatility, the more you can earn in a short time, but you can also quickly lose your investment. Many factors affect the CFD price:
- General economic situation;
- Changes in supply and demand;
- Enterprise income;
- Commercial and government programs;
- Domestic events;
- International politics;
- General market sentiment.
Flexibility and readiness to adapt to the situation are key to help you deal with these risks. If you use trading platforms, you can install volatility indicators that will tell you the most profitable entry and exit points.
High Leverage
High leverage is another factor that is both an advantage and a disadvantage of CFD trading. Since deposit requirements are low, you can make a large amount of money even with a small investment. Still, you can lose more than your initial payment. That is why it is essential to be able to apply leverage correctly. The primary way to protect yourself against losses is to set Stop Loss and Take Profit. When a product’s cost reaches the value you declared, a deal will be closed automatically, without your intervention.
Weak Regulation
Since the CFD market is still quite young, it is poorly regulated by law. That is why in this area, there is a high scam probability when your counterparty ceases to fulfill its obligations. To protect yourself, choose trusted and reliable brokers. Such services should provide competent customer support, ensure their websites operate without any technical issues and guarantee the smooth withdrawal of funds and a stable company policy.
Risk Management
Almost any business is associated with risks, and to receive stable profits, you need to learn how to manage them properly. CFD trading has many advantages, which largely outweigh the disadvantages, but only if you understand how all the instruments of this market work. Therefore, the key to success is knowledge and awareness that will help you minimize risks.
Authored by Sofia Hill, uboundmedicine.com