Wages are declining, and living standards in some countries are worsening due to ongoing inflation. It’s no surprise that more people are turning to complex financial products like CFDs and online trading.
Contracts for Difference (CFDs) are popular but criticized. Careless trading can lead to addiction or significant losses for many traders. The key is to approach CFDs with caution. After thorough research and study, avoid risking your hard-earned money.
Money comes and goes, so the best way to trade responsibly is to start small. Gradually increase your investments as you gain experience and knowledge.
Why is trading online so appealing?
With high prices and savings shrinking, as wages no longer support families, trading has become more appealing.
Ten years ago, people had more flexibility to find better-paying jobs or work longer hours, but this is increasingly difficult. In this context, CFDs seem promising, offering freedom from the 9-5 grind.
The promise of quick money through MT4 trading has sparked many discussions, but it’s not a guarantee. While it may seem like the big dream, the potential exists, and your approach will make all the difference.
It all depends on how reliable your broker is for online trading
CFD brokers abound, but great brokers are only a handful. How can you tell a broker is trusted? Well, there are a few things you can look for.
Their reliability is demonstrated through the quality of products and services, as well as a well-designed website with clear information.
Trusted brokers like T4Trade issue disclaimers to new customers. They inform them of the risks involved and the possibility of losing money when trading CFDs.
Speculating on the markets with your hard-earned money
Even the best of the best and most experienced traders lose money. Trading is a risky sport or profession, depending on how you approach it, and always come with the high risk of losing one’s funds.
Making money of course is the goal, but this doesn’t come easy and requires practice and experience. Trading CFDs with your pension involves risk, as CFDs are complex and risky products.
When you trade CFDs you don’t own the underlying asset—be it a currency pair or a stock—but you speculate on how the future price of that asset may change.
Why does trading online get a bad rep?
Sometimes, traders who lose their funds highlight the similarities between trading and gambling.
Many traders and investors, especially beginners, can become addicted to trading, much like a gambler. They feel exhilarated by online trading, stay up all night, or even quit their jobs to trade full-time.
Lack of knowledge, discipline, and self-control are major issues in investing. Trusted brokers provide education and support to help traders avoid these mistakes.
Being tired, overcome by emotion, whether that is excitement, fear of missing out or greed can lead to irrational decisions that will eventually cost you dearly.
One of the common mistakes that beginners often make is chasing losses and being stubborn, thinking that one more trade will help them recover their losses, but only incurring bigger ones.
Self-discipline and a clear state of mind are essential. This is why many professional traders recommend a good healthy lifestyle, continuous education and emotional discipline so traders always make the right decisions based on facts and not emotion.
Leveraging your trades
Another great aspect of trading that allows traders to succeed online, even if they don’t have the full amount, is leverage. Leverage can magnify your profits, but your losses too.
This is another reason that CFDs can be highly risky. For example, let’s say you have $100, you could leverage this amount by five and buy a CFD on $500 worth of shares.
The broker basically lends you some funds – the “margin” – so you can make a bigger trade.
If the share price increases by 20%, you gain an extra $100 and double your initial investment but if it falls, you could lose the entire $100 or even more.
Chasing wins
Online forums tend to provide a glimpse into the mindset of traders. For example, sometimes, you come across CFD retail investors who share their own experience about how losing more funds made them more determined to chase a potential win, only to lose more funds.
They may end up losing more after a few good wins. Retail investors often believe that finding the right strategy will lead to profit. However, unlike experienced professionals, younger traders lack the deep understanding gained through years of studying or working in finance.
Beginner traders jump right into trading and treat online trading as a side hustle instead of taking their time and basing their decisions on research.
As a result, beginner traders often make decisions based on emotions and euphoria, rather than facts, leading to reckless choices.
A side hustle
Indeed, a few traders who treat trading cautiously and are realistic can use their free time to explore trading rationally .
Others, however, even before they develop the right skills and build the necessary trading knowledge, jump right into trading with the hope of making money from assets rather than work.
To pursue trading as a side hustle, it’s important to take precautionary measures, including managing leverage. In some countries, brokerage firms must adhere to regulations that limit leverage and ensure funds don’t fall below a certain threshold.
Additionally, some companies may ask you to fill out a questionnaire to judge whether you have the necessary financial knowledge and experience to trade in CFDs.
Getting the right education
Succeeding with CFD trading is possible, but this depends on your education and expertise. Reliable brokers provide extensive resources, including courses, webinars, podcasts, in-depth articles, and YouTube tutorials to help you get into trading.
Having the knowledge and trading experience, as well as the extra capital, while being aware of the risks involved is a healthy way to explore trading.
Great brokers like T4Trade encourage traders to stay informed, promoting responsible trading that protects both their capital and mental health.
Losing your savings from reckless trading or developing an addiction is definitely not the right way to approach trading and can only lead to significant losses. As long as you have the knowledge and the right mindset, trading can be a rewarding experience.
Disclaimer: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
