It is worth mentioning that trading risks are very small only if a big leverage ratio is not used. All risks arise when the leverage ratio is increased; this is proportional to the potential profits but at the same time it also increases the risk of losses.
You should always keep this in mind while planning your trading. A high leverage ratio in itself is a huge advantage of CFDs compared with the classical financial tools. You should use it wisely. To minimize the risks there are some simple and important rules you need to follow.
1. Keep monitoring your leverage ratio.
For example, if you deposit $10,000 and open 1 lot of EUR/USD at the price of 1.40000 you will need to spend $140,000. If the leverage ratio used for the account is 100:1, for example, the margin on your account needs to be only $1400; the size of this margin depends on the leverage ratio you have chosen for your account. However, the real leverage ratio used in this transaction is:
140,000 / 10,000 = 14
Therefore, you will be using a leverage ratio of only 14:1 out of the possible 100:1 leverage ratio available. Using this leverage ratio will significantly reduce the risks of losing your margin. When trading, try to not use a big leverage ratio.
2. Know the market on which you trade. You must understand the market and the asset on which the transaction is being made. For example, different markets can experience different levels of volatility and differing tendencies to unexpected fluctuations in price. Furthermore, you must always keep in mind the period for which a transaction is open. Short-term transactions can use a higher leverage ratio in comparison to a longer-term transaction.
3. Watch your open positions closely; monitor the state of your account. In spite of the previous history of the market's movement, there can be unforeseen events in any market. To avoid their negative consequences, you need to monitor the current situation constantly. If you travel a lot, you can use our mobile application to access your account and use all the tools for trading while on the go.
4. Observe capital management rules. These rules aim to restrict losses on every given position. Most importantly, your losses should be no more than 2 % of your deposit. This is a very effective rule against serious losses. Using of "Stop-loss" and "Take-profit" orders will help you. We recommend that you use them at all times.
5. Do not try to use "pyramid" trading against the market. Remember that you can increase profitable positions only.
6. Remember that long-term trading is simpler than short-term pips-trading.
7. Keep learning and gaining experience.