Traders should take account of the extreme leverage on offer through CFDs, we are highlighting leverage as a mixed blessing in providing the opportunity for higher profits against a more significant downside risk when trading financial markets.
Overleveraged positions, or trades that are not well thought through can result in lasting capital damage, particularly where traders do not take measures to limit their liability. Stop losses and risk management strategies can and should be deployed to acknowledge and contain the risks of trading the markets.
Particularly in conditions of volatility, a lax approach to containing and measuring risk can have a significant adverse impact on trading performance and on capital going forward, causing a limiting effect on future earnings potential as a result of damage to capital reserves.
There are a number of simple steps CFD traders can take to guard against liability and assure more consistent, more profitable trading performance. Leverage is a major part of the attraction as far as CFDs are concerned. The promise of substantially higher returns from trading the same markets was always going to be a winner, yet as a device leverage must be handled with caution and used to sparing effect for best results. Remember that leverage can move both for and against you in equal severity as you trade, and be careful not to take any unmerited risks that could jeopardise your capital. By avoiding overleveraging your account or making rash, on the spot decisions, you can stand a better chance of profiting in aggregate from your time spent in the markets.
At Independentinvestor.com, we’ve published a range of free trading guides and strategies for containing the risks of leverage and how to make it work for you and your capital. By familiarising yourself with our materials, written by experienced traders in their own right, you too can benefit from learning new techniques to contain the risks posed by leverage.