5 essentials for risk management when trading CFDs
Trading CFDs? Vantage offers a range of tools and resources to help manage risk through the process.
Sponsored by Vantage. To learn more about trading CFDs, visit the Vantage website today. Trading CFDs/FX carries risk and is not suitable for everyone. Refer to our PDS and TMD. Vantage Global Prime Pty Ltd, AFSL 428901.
CFDs are inherently high-risk. But this doesn't mean that there aren't ways to reduce that risk and make informed decisions as an investor.
Today, we take a look at some of the key ways risk can be managed via the tools provided through Vantage.
1. Develop a trading plan
A trading plan is essential for any investor.
It serves as something of a baseline for you to return to throughout your investing career.
When you're uncertain about your next steps, it can be referenced as a guide -- including making decisions about risk around your investments.
Everyone's trading plan will look slightly different, but some of the points it should cover include:
- Your desired goals
- Your risk comfort levels
- Your available resources
- A projected timeframe to achieve your goals
- Areas of interest for investment
You can also read more about some of the key considerations for developing a trading strategy right here on Finder, too.
However, it's important to stress that trading plans should be living documents.
You need to check in periodically and make sure that your milestones are being hit and whether your strategy is working
If they're not, it might be time to update your plan.
Vantage also offers a demo account, which can be used to practice strategies before using real funds.
Learn about trading with Vantage
2. Use stop-losses
Most serious investors use stop-losses in order to reduce their losses and minimise potential harm caused by a trade that has not gone the way they hoped.
Essentially, you set a trigger point for losses that you deem to be acceptable.
(Make sure you reference your investment plan first!)
If the trade does make losses beyond this point, then your trade will be automatically closed.
Similarly, many traders will also use take-profit orders.
These operate on a similar principle, with the idea of automatically closing once you have reached a certain amount of growth.
Vantage offers stop-loss and take-profit tools through Metatrader 5.
These tools can allow you to limit potential losses and avoid greed-driven decisions.
Discover more about investing in CFDs with Vantage, hosted by Josh from Finder
3. Set price alerts
One way to minimise risk is to set price alerts.
On its own, this can be a useful tool for making purchasing decisions.
However, it can also be useful in conjunction with setting up stop-losses or take profits.
Having a close eye on pricing shifts can allow you to make quick and informed decisions as to whether it's time to set up additional risk management measures.
Vantage allows you to set up customisable price alerts, allowing you to stay informed on the latest market movements.
4. Find a platform with built-in risk management
Being able to set up your own risk management features – like stop-losses and price alerts – can be extremely useful.
But it's also good to look for trading platforms that also have automated features built in, too.
For example, Vantage features Negative Balance protection for traders.
In essence, this means that traders can't go into a negative balance, i.e. below the amount they have initially deposited.
Tools like this can be useful for preventing excess losses over time.
5. Get educated
A good long-term investor will also invest in themselves.
The market can move quickly, so your strategies (and sometimes priorities!) need to shift accordingly.
So it's important to leverage resources to hone your skills.
Over time, this can help you make more informed investment decisions, with an appropriate attitude towards risk.
To assist members with ongoing education, Vantage offers Vantage Academy.
Vantage Academy features a range of articles, courses, webinars, eBooks, terminology guides and more, to help investors keep up to date with the latest developments within the field.
Learn more about trading with Vantage
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