4 reasons why managing risk and position size is critical for traders
CFDs are a volatile market. But there are ways to reduce the risk involved in trading.
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Experienced traders have an intimate understanding of risk management and the tools required for it.
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1. Risk management is foundational
Risk management is a foundational part of any trader's toolkit.
When used correctly, it can allow you to gauge your own comfort level with risk in investing.
This way, you're able to draw up a trading plan and make investing decisions that align with it.
And once you are trading, you can put tools in place to help further manage your risk.
For example, Pepperstone lets you use stop-loss tools.
A stop-loss lets you create a set of parameters for your trades.
If you lose too much on a trade – usually defined in percentages or specific dollar amounts – a stop-loss will automatically exit that trade before the position gets worse.
This helps minimise losses to your overall capital, which is critical if you're looking to be a long-term trader.
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2. It can lead to more effective long-term trading
Serious investors understand that investing isn't a short-term game.
It requires patience, ongoing education (more about that later) and a good understanding of risk.
Your risk will also need to be scaled accordingly, as your portfolio and holdings fluctuate in time over the course of your investing.
This is particularly true with CFDs, because you're able to trade with leverage. Pepperstone allows you to invest with leverage of up to 30:1.
This can potentially lead to bigger profits with reduced costs.
However, if a position goes against you – you can actually lose more than you initially invested.
This is where risk management comes in!
Every trader is different. But as a general rule, experienced traders won't risk more than 1-2% of their total position on a single trade.
In conjunction with stop-losses and other tools, this can help avoid making decisions that could endanger your portfolio.
Trading with Pepperstone
With Pepperstone, you're able to trade across a range of markets and platforms, while also getting access to a range of educational resources.
🏫Learn to trade and upskill
Learn the fundamentals of trading CFDs and stay up to date on the latest developments.
📈A broad choice of markets
Choose from more than 1,300+ CFD instruments to complement your portfolio.
💸Reduced average spreads
From $35 to $15 on BTCUSD and from $3.7 to $2 on ETHUSD.
⏰Uninterrupted 24/7 trading^
No weekend platform downtime or associated price gaps.
🪙14 new crypto CFD pairs
Including Tron, Pepe, Bonk and more.
📞Locally-based support
Get access to help 24/7, whether online or over the phone.
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3. It can help you make more informed decisions
Risk management isn't just about preserving capital in the short-term.
It's also about being able to make more informed decisions in the long run.
As CFDs are considered high-risk, it's worth testing strategies before putting real money at risk.
One way you can do this is with a demo account.
For example, Pepperstone offers a demo account that's tied to real-world trading values.
So you're able to test out your strategy first and see how it performs before you use any real funds.
4. It's the law
Last, but definitely not least – risk education is a legal matter!
In Australia, ASIC mandates that trading platforms have to educate their users about the risks involved in CFDs. Otherwise, they can face serious penalties.
From a trader's standpoint, a lack of education around risk management can also lead to you being unnecessarily exposed to risk, without the requisite protections.
So when you're choosing a trading platform, it's worth looking for one that offers a variety of educational resources.
For example, Pepperstone offers a range of resources for continuing investor education, including market analysis, trading guides and webinars.
Learn more about trading with Pepperstone today
Pepperstone does not require a minimum opening deposit. Commissions vary according to the asset being traded but start at $5 or 0.07% on AU Share CFDs.
