The important thing to remember about CFD trading and leverage is that it can magnify your losses as well as your profits. So if prices move against you, you may be closed out of your position. This is why it’s important to understand how to manage your risk.
Risk management is one of the key concepts to long-term success on the financial markets. So, what elements make up good money management? Let’s take a look at some key aspects:
Even the best traders suffer losses. It’s part and parcel of trading. The key to risk management and successful trading is to limit your losses to a manageable level, so that you can stay in the market for longer and increase your chances of having more profitable trades. One way to manage risk is to stick to reward/risk ratio such as 2:1 or 3:1, where your targeted profits are always double that of your maximum losses. So even if you suffer three losing trades, you’ll only need two profitable ones to ensure your total profits outweigh your losses.
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