Often new traders are eager to get started after reading about the enormous gains made using CFDs. They then jump into the fray without understanding what they’re getting themselves into, which leads them to make mistakes. To avoid making these same mistakes other first time traders make, keep reading.
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Not Understanding What You Are Getting Yourself Into
Before trading with any broker, it is essential to fully understand how CFD (Contract for difference) works and how much risk you could potentially face should things go wrong. When doing your research on different brokers, look at their levels of service and their reputation for responding to customer queries.
Ensuring that there is fast support available when you need it will help ensure that issues that arise are solved quickly and efficiently.
As well as ensuring you understand how much risk is involved when trading CFDs, it is also essential to know what the chances are.
There is a learning curve involved in learning how to trade with CFDs, which can make things difficult if you don’t have experience in another form of trading (such as forex or shares). If you do decide that this type of trading is right for you, then putting in the time needed to learn will give you a better chance of success long term.
Failing To Consider Tax Implications
Whilst dealing with an overseas broker might seem like a great idea to avoid all taxes, such brokers aren’t always the best choice. Other brokers based in the same country as you will often still account for all taxes that might be incurred when using CFDs.
It is essential to make sure that you understand which countries such tax implications arise from and factor this into your trading decisions. You may want to look at brokers who can guide what types of tax incentives or reliefs they can offer you(such as Saxo Bank Group).
Not Using A Demo Account To Test Out Strategies
When first getting started with CFD trading, it is common for most people to immediately begin trading with real money rather than use a demo account. It provides a valuable opportunity to test strategies without real consequences if things don’t work out exactly as planned. Once you have used the demo account and refined your strategy, you are ready to begin trading with real money.
Making First Trades Without A Plan
When first getting started with CFD trading, it is tempting for some traders to immediately begin making trades without carefully considering their plan of action first. It can lead them to enter into deals that they later regret if the market takes a turn for the worst. To avoid this happening, it is best to plan all potential sales before actually placing them and only enter into those which you feel comfortable with based on your research and understanding of what’s going on in the market at any given time.
Not Having An Exit Strategy In Place Before Entry
Many new traders make mistakes when using CFDs by only having a plan for entry but no strategy in place for when they want to exit the trade. It can result in them being stuck in a position against their original thoughts and intentions, leading to more losses than planned.
Before entering a CFD deal, it is essential to have a plan for entry and exit based on your market research. Consider how much money you could potentially lose if things go wrong and then base your exit strategies on these figures so that you know exactly what steps need to be taken should the worst-case scenario come true.
Starting With More Money Than You Can Afford To Lose
New traders often fail to consider whether or not they have enough capital available before starting. A good rule of thumb is to only place with money you are prepared to lose rather than using all of your available capital. When trading CFDs, the market can move against you very quickly if things don’t go according to plan, resulting in losses that can mount up very fast.
