Dec 3, 2020

Techniques on Trading CFD: 5 Risk Management Options to Mitigate Loss

Imagine a situation where you continuously get favorable positions while trading CFD. I am very sure that you will definitely feel good to know that you are playing your positions well. But what if things suddenly turn upside down and you never had a chance to activate your stop loss feature? Do you think you could afford losing the whole of your account?If you start to get scared with this thought then this post will help you because we are here to disclose 5 Options that you can do to manage your losses.

1.Apply the 2% policy

This rule is the most commonly applied technique to lessen the risks of trading CFD .  As expected, this policy tells a trader not to invest more than two percent of your available capital in a particular trading session. The max amount should cover commissions and other important fees that are given to the broker.

2.  Account your possible profit

Accurate accounting of expected wins and loss in your positions will give you a picture of your trading experience as a whole. Technically, this can help you cross check your possible profits in various markets. Below is the formula that is used to compute possible profits:

Returns = [(probability of gain) X (take profit % gain)] + [(probability of a loss) X (stop loss % loss)].

3. Consider Taking Profit Points

A moment where you get to sell a stock harness the generated profit from your decision is considered a taking profit point move. This is usually performed when your trade has a limited possibility of going up and would most likely be submitted for consolidation after the occurence of an upward move. Thus, you are able to convert your loss into a more profitable outcome by taking either the partial or full proceeds of your trade at a predetermined rate. In order to do this, you have to possess the skill of  forecasting when to particularly do such an act. One can make a forecast by looking at signals that indicate possible loss.

4. Activate Stop- Loss Orders

This feature is usually available when you sign up for a derivatives trade. As a highly recommended loss mitigation technique, a stop loss order  is usually applied in circumstances where the trader identifies the moment where stocks should be sold. Moreover, the feature helps a trader to establish a plan while his thinking and emotion are in good condition. Upon determining the price for purchasing a financial instrument and the avenues where you have made a mistake on your decision, you can activate your stop loss feature and bail out to have an assurance of profit thereby evaluating its viability.

5. Set up your trading blueprint

Your trading blueprint is your trading plan. We all know that without a trading plan, you will never have an idea where your trade will bring you. Take note that a trading plan will help you feel confident and relaxed even at moments where the commodities become volatile in the market. To set up your trading blueprint,you have to know the cases where you have to execute stop-loss orders, evaluate the points when to get in or out of the market, evaluate your target positions, outline trading strategies, and list down your trading strategies.

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