Keeping Risk Under Control with CFDs

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Keeping Risk Under Control with CFDs

One of the main reasons why most retail traders fail to make money trading CFDs is their lack of understanding when it comes to risk management. They still view the world of trading as fixed as a full-time job, when in reality this is one of the most flexible environments. Luckily, for those who want to find ways to have risk diversification and keep the numbers in their favor, CFDs can be a very useful tool.

#1 Hedging

Hedging with CFDs is a common practice among traders owning “solid assets” like stocks, ETFs, or bonds. By doing so, they have a long exposure on the market, but unfortunately, prices don’t go up on a straight line. By keeping these assets in the long run, they can profit from the value appreciation and at the same time, collect dividends.

With CFDs, they can profit from bearish periods, given that swaps on short CFD contracts are always small. Having s short-term approach by using them, while at the same time keeping a long-term market exposure is a common practice among professionals.

#2 Strict risk parameters

Maybe you’ve had a strong winning streak with 10, 20 profitable trades in a row. What most of the beginning traders do in such cases is to increase their risk, confident they can’t be wrong. When you buy or sell CFDs, you are not trading an asset. In reality, you are trading a probability. Even though your strategy has 80% accuracy, that 20% will show up at some point and result in large drawdowns if you don’t stick a strict risk parameters list.

You won’t take the big hit with a single trade, but you will become successful long term if you manage to control yourself when the instinct is telling you to risk more.

#3 Rules-based trading regime

Discretionary trading is common among most retail traders, especially after a few losses when frustration is very high. You need to have a rules-based trading system and trade it no matter if you come after a loss or a win. Rules are not subjective to your mood and discipline will be one of the hardest skills to develop in trading.

How to analyze the market (technically and fundamentally), when to open a trade, how to set stop loss and take profit, how to constantly adjust the risk management as your account balance changes, and how to analyze your trading performance, are just a few of the things you must include in your strategy.

What you can do to control your risk

We encourage all our customers to manage their risk, and to put in place tools and systems to help protect against the dangers of the financial markets whilst seeking rewarding returns

Set your Loss Protection

With our Loss Protection, you can easily set the level at which your portfolio protection should take effect. For example if you have £5,000 on your account and don’t want to risk more than £750, simply set your Loss Protection to 15%. The £4,250 account balance is the equity to protect*. If your net liquidation value (balance incl. open profits and losses) reaches this value, then all positions will be closed at the next possible price and you will be disconnected from your Top Traders.

Adjust your portfolio

If you see a Top Trader in your portfolio who is under-performing, you can easily adjust the order size for each Top Trader by clicking on the spanner next to their image . Using the slider, you can increase or decrease this value, and this is available for individual instruments as well. Click “Set Individual Values” and reduce your investment in certain instruments, for example, gold if they happen to be doing poorly in that particular asset.

Be aware

It’s important to regularly check the performance and make-up of your portfolio.

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If you follow a Top Trader with high risk statistics, you may potentially make quick profits, but you’re also more at risk of making quick losses. This applies to Top Traders in the lower levels of the ayondo Trading Career in particular.

Keep an eye on the Risk Score (TRS)

We have added an easy to track Risk Score (TRS) to provide additional insight into a trader’s attitude to risk.

The TRS takes into account various factors, but primarily the total size of a Top Trader’s positions relative to the account balance and the way this relationship has evolved historically. The TRS provides Followers with an indication of the associated risk (and consistency) of a Top Traders’ money management. It is not an indication of a Top Trader’s ability to make (or lose) money.

Top Traders are grouped into lower risk traders (1 to 4); medium risk traders (5 to 7); and higher risk traders (8 to 10)

Practise with virtual money

Try out Social Trading on a demo account before you activate your funded live account or visit our webinars to learn more about Top Traders and how to manage your portfolio. The more familiar you become with the concept, the larger the amounts you will feel comfortable investing.

*Note this is not a guaranteed stop facility and you may lose more than your specified amount.

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Risk Warning

CFDs and spread bets are complex instruments and come with a high risk of losing money rapidly due to leverage.

75.9% of retail investor accounts lose money when trading CFDs and spread bets with this provider.

You should consider whether you understand how CFDs and spread bets work and whether you can afford to take the high risk of losing your money

ayondo is a trading name of BUX Financial Services Limited

Trade execution services are provided exclusively by BUX Financial Services Limited.

BUX Financial Services Limited is a company registered in England and Wales under register number 03148972. BUX Financial Services Limited is authorised and regulated by the Financial Conduct Authority, FCA Register number 184333.

Note for consumer

Social Trading services are provided exclusively by ayondo portfolio management GmbH.

ayondo portfolio management GmbH is a company registered in the commercial register of the local court (Amtsgericht) Frankfurt a.M. under the registration number HRB 102933. ayondo portfolio management GmbH is authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin Register number 145765.

†Spread Betting is currently free from Capital Gains Tax (CGT) and there is no stamp duty in the United Kingdom. It should be noted that tax treatment depends on your individual circumstances and may be subject to change in the future. Tax law can be changed or may differ if you pay tax in a jurisdiction other than the UK.

Disclaimer

The information on this site is not directed nor is intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local laws or regulations. Such residents and countries include, but are not limited to, the United States.

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This website uses cookies to ensure that you have the best experience on our website. The cookies track our visitor’s usage of our website but they do not tell us who you are. If you click on ‘continue’, or just move away from this page without changing your settings, we’ll assume that you are happy to receive all cookies on the website. However, if you would like to, you can change your cookie settings at any time. Continue Find out more

75.9% of retail investor accounts lose money when trading CFDs and spread bets with this provider.
You should consider whether you can afford to take the high risk of losing your money

This website uses cookies to ensure that you have the best experience on our website. The cookies track our visitor’s usage of our website but they do not tell us who you are. If you click on ‘continue’, or just move away from this page without changing your settings, we’ll assume that you are happy to receive all cookies on the website. However, if you would like to, you can change your cookie settings at any time. Continue Find out more

75.9% of retail investor accounts lose money when trading CFDs and spread bets with this provider.
You should consider whether you can afford to take the high risk of losing your money

Risk-management tools

The markets aren’t forgiving if you’re unprepared. That’s why you need tools that make managing risk a natural part of your trading plan. With our built-in risk management toolbox, it’s easy to stay in control, whatever the markets have in store.

Risk control, full stop
Trail your stops
Guard your capital with Account Shield
Monitor FX margin changes
Your trading reports are ready
Monitor open positions
Monitor your open orders

Learn how to manage risk

Learn how to manage risk

Learning how to manage risk in the markets is one of the most important steps for any trader or investor.

Get started with risk control

Take the next step and start putting risk management to work for you on every trade you make.

Democratising trading
and investment for
more than 25 years.

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900 Hellerup
Denmark

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Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.

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