Traders should consider diversifying their positions across different markets and sectors, in order to spread the market risk of taking exposure to CFDs and to offset the threat of a total account collapse.
Choosing to trade smaller positions over more numerous positions is a common strategy for sharing risk across a portfolio and across different markets, as an attempt to insulate portions of capital through unrelated, unlinked investments in the assumption that while one or two might fail, the odds of more positions turning against the markets simultaneously are lesser. This allows traders to dampen the risks of being exposed to the market, particularly with such high leverage, in order to build a more secure, stables trading account for long-term returns.
While too much diversity can make a portfolio unmanageable, spreading the risks to your capital across different, isolated positions can be a better way to manage the odds in your favour.
Diversification almost always means strength from a risk management point of view. The idea of putting your eggs in one basket and why that’s a bad thing is well versed, yet it is no less applicable in the event of derivative products, and those that spread their financial eggs over a wider base of positions can expect lesser risks and a smoother path to achieving capital growth on aggregate. More diverse portfolios, within reason, tend to outperform those that choose a narrower base for investment, particularly when analysed over the long-term.
On this portal, you’ll find extensive resources and materials on how to effectively diversify your trading account, and how to make the most out of the opportunities available to you; the materials are designed to help make it easier for traders to introduce the right mix of risk management into their portfolio, and to understand both the principles and practices which make diversification work as a trading aim.
Independent Investor is an online investment and financial market guide, written by experienced traders to share insights and tips for greater success. Covering the basics of getting started and how to trade in CFDs, share dealing, spread betting and a number of other different trading types, and shares strategies and techniques ranging up to advanced technical analysis in order to provide traders with access to the materials they need to further their portfolio. Comparing brokers is an important part of establishing a profitable trading account, and we helps traders find the most competitive terms on trading commissions from across the industry.