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How much should you put into each CFD trade?

by , 17 September 2015

If you've decided to give contracts for difference (CFDs) trading a go, you need to think about how you're going to manage your money before you begin.

So how much money should you put into each CFD trade you put on?

Let's take a closer look…


You need to start off trading CFDs conservatively


As eager as you may be to make some money trading CFDs, you need to start off putting down small amounts of money.

This has a number of benefits…

  • A few losing trades won’t wipe your trading account out;
  • The more profitable your trades are, the more you put down as your trading pot grows; and
  • It helps to keep a lid on the risks you take on trading CFDs.

The easiest way to do this is to ensure you use position sizing. Position sizing is all about the amount of money you put into each trade and you want to keep this small.

If you’re a very conservative trader, you could risk 1% of your trading pot per trade. If you’re more aggressive, you could consider risking 3% to 4%. Many traders like 2%.


How to use position sizing when you trade CFDs


Let’s see how using position sizing works with an example…

You have trading capital of R10,000 in your CFD account. You decide to risk 2% per trade.

This means that in each trade, you won’t risk more than R200 per trade. So if your trade hits its stop loss, you won’t lose more than R200.

To calculate this, you need to work out how much you’ll lose using your stop loss. This will determine how many CFDs you buy.
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If your stop loss means your potential loss is R10 per CFD, you could enter a trade on 20 CFDs. This will limit your potential losses to R200 of your trading pot.

So there you have it. How much you should put into each CFD trade.

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