If you’re just getting started with CFD trading, you’ve probably already realised it’s a bit of a learning curve. Contracts for Difference (CFDs) can be a great way to trade on the price movement of assets without actually owning them, but they also come with some risks.
These risks are often overlooked by beginners. So, before you start trading, let’s go over some common CFD trading mistakes that you need to avoid.
Trading Without a Plan
This one is a classic. Many beginners open a trading account, watch a few YouTube videos, and think they can start trading right away. Next thing they know, they’re entering trades randomly and wondering why it’s not working out.
Random is not a strategy. It will almost always result in a loss. What you should do instead is build a trading plan. Define your:
- Risk tolerance
- Profit targets
- Entry and exit rules
Having a plan gives your trades structure and saves you from making decisions based on panic or excitement.
Ignoring Risk Management
If you’re risking half of your capital on a single trade, you might as well stop trading and start gambling. Because one bad move could wipe your entire account in a single blink.
Risk management is one of the most, if not the most, important strategies for trading of any kind. Don’t risk more than a percentage or two of your total trading capital on a single position. Also, make sure to set stop losses for every trade.
This might sound conservative or too restrictive, but it keeps you in the game long enough to learn and grow.
You can also use demo accounts to test your strategies, which most CFD trading platforms offer, so you know how much risk you are ready to take.
Over-Leveraging
CFDs are known for giving traders access to leverage. And while leverage can multiply your profits, it also multiplies your losses.
Many beginners get excited seeing small investments turn into big trades – until the market moves against them and their position gets wiped out in seconds. The amount of leverage you take impacts both your wins and losses.
Start with low leverage, especially if you’re still learning the ropes. And once you understand how it affects your trades and emotions, you can slowly scale up.
Chasing the Market
If you’ve ever seen a stock or asset suddenly spike and felt that FOMO (fear of missing out) itch, you’re not alone. A lot of beginners see that and jump in too late in the hopes that it will keep rising, only to watch it crash seconds later.
That’s what chasing the market looks like.
When you’re trading CFDs, chasing volatile price movements without a plan is a quick way to lose money. Instead of reacting emotionally, learn to anticipate setups through technical and fundamental analysis.
Emotional Trading
It’s easy to get caught up in the highs and lows of CFD trading. You win a few trades and feel invincible, then one loss sends you spiralling into revenge trades, trying to make the money back.
This is where self-discipline comes in. Successful traders treat their trades like a business. Stick to your plan, review your trades regularly, and take breaks when needed.
