What is The CFD Trading Market?
CFD refers to the Contract For Difference. In real words, it is defined as the net difference between the opening and the closing trades.
The trades on CFD began in 1990, the very first CFD exchange was conducted in the London Exchange Market as hedge funds, whose purpose was to dissolve the perspective of investors. The high risks and losses in trading make investors step back and not take much part in it. However, with risk comes the profit as well. Considered as the biggest risk, investor participation was below the line. Therefore, the online trading market did not perform well at first, but after the London Exchange trading seminar led to a change in perspective and point of view of traders. Later in the 2000’s the growth in CFD trading was witnessed. Now, traders are well aware of risks and actively participate in CFD trading.
EzChargeback has been working on the scams and risks involved in online trading for quite a long time now. We have published several articles related to this particular subject. This article will talk about the risk factors leading to money loss.
Risks Involved in CFD Trading
When an investor opens an account in CFD, they must have adequate capital to get their account opened. The CFD providers monitor the capital amount to ensure you can cover the loss.
Thus, it illustrates that loss is part of trading whether you like it or not. The risks are naturally involved in the trading market, and it is not merely in the CFD market but in general in every trading market. Even the most knowledgeable and expert traders had faced loss once in their life. The reports have stated that 82% of the CFD accounts lose their money, which could be demonstrated as that merely 1 out of 5 people make profit on these trading sites. Another study revealed that in Brazil, 97% of regular traders lose money over 300 days of time period. Merely, 5% traders are able to make the utmost profit. Following are some risks involved in CFD trading:
1. Failure to Plan, Plan to Fail
Trading businesses and traders join CFD without much money and assets in safe lock. They invest all their money in this trading site. CFD includes a higher cost of spread which is the amount paid to execute the trading. Further, overnight charges called long position trade lead to huge expenses. The long position is the money providers’ lent to investors for the purpose of buying commodities. Providers’ charge interest per day, the longer an investor will hold money, the higher the payment he will have to pay. Additionally, margin calls can further lead to loss of money. The trader of business needs to be well aware and prepared for all such costs and expenses before joining the trading site. With no plan the traders will lose in the way and during that tenure he is most likely to make several digit losses. Therefore, failure to plan the procedures and investment schedules can lead to failure itself.
2. Investment Strategies
The traders should focus on the type of investments and commodities they are very well aware of, also, in which they are most experienced. If they are willing to try new ground and investments, they should not conduct that trade from a significant investment account. Rather tryouts should be from demo systems or accounts with small investments. So that even if you did not gain profit, at least you would not have lost a lot of money. And losing it is a part of trading, so one should not be afraid of it and not try new investments; you will lose even in the fields you are best at. However, you will not do everything with small investments.
3. Margin Calls Are Real Risk Leading to Loss of Money
The margin calls involve greater risks compared to traditional trades of commodities. For instance, if the trader decides to buy a commodity worth $80, he is willing to buy 100 shares then it would cost him $8000. If before the closing position the price rose to $100, now the trader will make profit by earning $10,000. Initially, you bought the commodity with a $1000 margin, with a rise of $20 you will gain $1200 margin. However, if you incur the loss, you will have to pay $200 extra from your account. Thus, margin calls are unpredictable and lead to huge losses.
Trading contracts for difference (CFDs) comes with a number of advantages, including reduced margin requirements, simple access to markets in a variety of countries, freedom from restrictions on day trading and shorting, and fees that are either nonexistent or very cheap. A high degree of leverage, on the other hand, magnifies losses when they do occur, and needing to pay a spread to enter and exit positions can be costly when huge price changes do not occur. Please inform the authorities immediately and contact a funds recovery firm as soon as you suspect you have been scammed.