Nowadays, saving is little more. Some banks even bring negative interest on savings in consideration. That is precisely why more and more people are looking for alternatives. One of these alternatives is investing in financial products like CFDs. What do you need to know before you start trading CFDs? Below are the most common beginner mistakes so that you can avoid them.
Not doing enough research
To be able to trade CFDs successfully, you need to do your homework. For example, we encourage you to read more about what CFDs are and how they work. It is also worth analyzing the history of the price of the product you are planning to invest in and learning about the market. For example, examine how the price reacted to certain events in the past. The CFD market is influenced by various factors like politics, economy or even the weather.
Then create an account with one of them the best CFD brokers from the Netherlands. These brokers offer an educational center where you can find a lot of information about investing in trading instruments like CFDs. Be sure to consult this educational center to learn more about CFDs before you get started.
In addition, the best CFD brokers offer you the option to create a demo account. This account allows you to buy and sell CFDs for free and try out different strategies.
If you don’t do enough research, you run the risk of losing all of your money invested. So it’s definitely worth taking your time and doing your homework.
Don’t use a strategy or plan
Do not invest in CFDs without a strategy. This is closely related to doing enough research. Find the strategy that suits you best and apply it first with the broker’s demo account. That way, you will know how the strategy works without losing any money.
In addition, it is also very important to have a plan. Decide which instrument you want to invest in, whether you want to go short or long and what the maximum amount you want to invest is. How long do you keep your position open? When do you post a Finish order? These are all questions that you should answer beforehand.
Don’t use all of your capital at once
A third common beginner’s mistake: use all your capital at once. It’s way too risky. If the rate falls, you will have lost all your money. The CFD market is very volatile. The price fluctuates continuously and there is a good chance that there will be a sudden reversal. Even after you have placed a stop order, you can lose a lot of money if possible.
For this reason, it is recommended that you wager no more than 2% of your available balance per transaction. Additionally, it’s a good idea to get yours Spread investments. Therefore, open different positions and invest in other markets or sectors.
Also, be sure to use a lever. We’ll tell you more about this below.
Don’t use too much leverage
It can be tempting to use high leverage when investing in CFDs. This way you can get more profit. But the opposite principle also applies: if the price of the product falls, you make more losses.
Therefore, set a certain limit in advance. At what price do you want to go? For example, you can use a stop order. Below you will learn more about why it is important to set a stop order.
Do not use stop orders
Do you want to take a low risk of loss? Then use a stop order. A stop order allows you to buy or sell trading instruments when the price reaches a certain price level.
This way, you can automatically take profits or losses. In this way you limit the loss or block the profit that you have made.
Do not try to regain your loss
Are you at a loss? Then don’t try to win this back. It can be tempting to win back lost money, but it doesn’t always work as hoped. Losing money is just part of investing. In fact, it is estimated that between 74% and 89% of investors lose money when trading CFDs. If your strategy isn’t working, the best thing to do is to change tactics. Be realistic about opening a position and trading without emotion.