This is a short article about some of the mistakes CFD traders in Australia could potentially make when trading with this type of investment. CFDs are much more complex than traditional stock market investments; it is essential to know what you can and cannot do when using them. If you don’t want to learn about these things yourself, we recommend that you only invest money in CFDs through a licensed broker. You can use this link to trade with CFDs online.
Lack of Proper Research Before Opening a Position
It is not a good idea to invest in a product you do not understand. Trading CFDs is different from trading stocks or other securities – because trades have an expiration date, and trade orders can be placed within minutes. In short, the potential for loss is high if your information about the asset you intend to trade has been gathered haphazardly and without any detailed study of what’s going on with the asset’s price charts. “Knowledge is knowing that a tomato is a fruit; wisdom is not putting it in a fruit salad”, as paraphrased by Sidney Madwed.
Risking More than You Should
When you decide to start trading, it is essential to set realistic expectations for your investment – e.g. how much of an initial deposit will be required? Is five per cent of my capital too low or too high? What kind of growth do I expect over one month? Six months? Twelve months? If you feel that you cannot come up with reasonable projections, consider working on your trading skills until you know what direction your bets must take to maximise profitability and minimise losses.
In the same way, you should understand how much of your total investment will go towards trading costs and platform fees. Trading platforms typically charge a monthly fee for using their service, which might eat into your profits if you do not adequately consider them when calculating your long-term growth targets. For example: if you invest $500 into CFDs on Apple Inc., but end up paying $60 in trading fees over the next six months (due to the volume of trades made by your account), you must add that figure to the total amount of money required to breakeven – thus making it $560. This is better than losing money but could still lead to problems when planning out your future CFD investment goals.
Poor Risk Management Skills
This mistake often coincides with the second one – traders will risk more money than they can afford to lose to pursue more significant profits. When a position goes sour, the trader doesn’t have enough funds remaining to cover their losses and ends up getting Margin Called. In order words, their broker sells out their position at a loss to protect their interests. Losing all your money in this way can be emotionally scarring, so always remember: never trade with money you cannot afford to lose.
Lack of Knowledge Regarding Expiry Times
The term “Expiry Time” is used by brokers to denote the time limit (measured in hours) within which you must execute your trade orders before your positions are closed out automatically at a loss. Most brokers will let you choose between different expiry times, ranging from 15 minutes up to one month.
An options trader’s strategy may vary depending on how long they intend to hold their positions – or whether they place very short-term bets to cover themselves quickly before things go awry. For example, if I knew that my bet would yield me $1,000 in gains for every $100 risked, I would be inclined to play it safe and hold my position for a long time. However, if I were going to make a bet that stood only a 0.01% chance of winning, I would not bother holding onto the trade for one month. Instead, a few hours should suffice before closing the position above breakeven (or making some money either way).