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How to manage your CFD account to cope with inevitable losses

by , 25 May 2015

When you first begin trading contracts for difference (CFDs), you're likely to be very excited about the profitable journey that lies ahead.

But as soon as you have your first losing trade, this feeling evaporates.

All traders have losses. It comes with the territory. The key is managing your trades in an effective way so losing trades don't wipe you out.

So how can you do it?

Read on to find out…

Managing the risk side of trading CFDs

Trading CFDs can be very profitable. But equally so, you can make big losses too if a trade doesn’t work out as you thought it would.

To ensure that a few losing trades doesn’t bring your CFD trading career to an end, you need to manage your trading pot.

So what’s the best way to go about doing this?

Never trade more than 10% of your trading pot on one CFD trade.

If you do this along with a 20% stop loss, you’ll never lose more than 2% of your trading capital in one go.

Yes this might mean starting off with small trades, but the more successful you are, the larger your trading pot will become and the more you’ll end up putting on trades.

How this works when you trade CFDs

Let’s have a look at an example to show how this technique works…

You have R100,000 in your trading pot.

This means you only risk 10% of this on the first trade you put on. In other words, R10,000 (10% of R100,000).

If the trade doesn’t work out as you thought it would, you’ll lose R2,000. That’s 20% of your initial stake.

This means you now have R98,000 in your trading pot. The next trade, you put down R9,800.

By trading this way, you’ll protect yourself against catastrophic losses that come with trading too big. And as you become more successful, the amount of money you risk will grow with your trading pot.

So there you have it. How to manage your CFD account to cope with inevitable losses.

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How to manage your CFD account to cope with inevitable losses
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