As well as creating opportunity for profit, CFD trading also increases opportunity for loss. By formulating a trading strategy and remaining disciplined, investors can reduce the risk of loss and increase the potential for profit. To manage risk, traders should:

Establish a trading plan

It is crucial, before trading, to decide your trading strategy. Decide entry points, exit points, and your objectives. Once you have started trading be disciplined and stick to this plan.

Apply Money Management

Manage your money effectively. Set an amount of your overall equity you are comfortable with using on margin. For example, if you were comfortable with 10%, and your account is worth £100,000, then use £10,000 as initial margin per trade. Keep to this 10% figure whether your account gains or loses.

Use Stop Losses and limit Orders

Don't ignore stop losses and limit orders. These are crucial to minimising risk, especially with a product such as CFD which is traded on leverage.

Don't try to buck the trend

Traders often say, 'the trend is your friend'. Don't assume your stock will be one to buck the trend so follow it. At the same time, learn to recognise when a trend is coming to an end.

Don't be afraid to short

The majority of CFD traders take long positions because they want the market to go up. Don't be afraid to take a short position. If it helps, turn a chart upside down and pretend instead you are buying the dips.

CFD trader is a trading name of IG Markets Limited, a company registered in England and Wales no. 04008957. Registered Office: Cannon Bridge House, 25 Dowgate Hill, London, EC4R 2YA. Authorised and regulated by the Financial Conduct Authority, Firm No.195355.

SVS Securities Plc. Registered in England and Wales no. 04402606. Registered Office: 20 Ropemaker Street, London, EC2Y 9AR. Authorised and regulated by the Financial Conduct Authority, Firm No. 220929. A Member of the London Stock Exchange and an HM Revenue & Customs Approved ISA Manager.

Risk Warning: Remember that Contracts for Difference are a leveraged product and can result in losses that exceed your initial deposit. CFD trading may not be suitable for everyone, so please ensure that you fully understand the risks involved. Trading in CFDs carries a high degree of risk, and prices may change quickly and go down as well as up. Past performance will not necessarily be repeated and is no guarantee of future success. CFD contracts can only be settled in cash. Transactions in CFDs may also have a contingent liability. Contingent liability investment transactions, which are margined, require you to make a series of payments against the purchase price, instead of paying the whole purchase price immediately. You may sustain a total loss of the margin you deposit with a firm to establish or maintain a position. If the market moves against you, you may be called upon to pay substantial additional margin at short notice to maintain the position. If you fail to do so within the time required, your position may be liquidated at a loss and you will be responsible for the resulting deficit.

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