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The average day trader loses money. 9 out of 10 day traders across all trading platforms is doomed to fail, which in itself is a very discouraging fact. But why? Why does the average trader lose money with CFD trading? The answer is simple, human nature makes trading a lot more difficult. In this article we look at the biggest mistakes made by traders, and how to avoid them at all costs. I also give you some tips that makes trading on Plus500 a whole lot easier.
Tip 1: Use the WebTrader
Plus500 offers a trading program that you can install on your computer, but the most recent version of the online WebTrader is actually much better than the software you can download. The WebTrader works easier, is more beautiful, the graphs are clearer. Click the button on the right to open the WebTrader.
An additional advantage of the WebTrader is that it works instantly on all computers, directly from the browser. Even if you don’t use Windows on your computer, you can easily trade on Plus500. The WebTrader doesn’t have to be downloaded and therefore also works fine on Mac OS and Linux, for example.
Tip 2: Focus on the larger trends
With the Plus500 software, it is tempting to do multiple transactions a day. However, few day traders are successful. You will make profitable trades easier by focusing on the trend you see on the day charts. In a rising trend this means trading on the dips, in a falling trend you go short on the strong days. So don’t be distracted by short movements during the exhibition session!
Tip 3: Mobile trading with Plus500
I don’t tell you anything new that everyone likes to keep a close eye on their open positions. Because of this Plus500 has chosen to provide its investors with the possibility of mobile trading. Do you have an iPhone or iPad with internet access? Search the App Store for “Plus500”, download the mobile trader app and you can get started right away, wherever you are and whenever you want. Would you rather not download an app? No problem, Plus500 has got you covered. There is also a fully mobile version of the WebTrader available.
Tip 4: Short selling: speculate on drops
By going short on Plus500, traders can profit from a bear market too. Many novice traders are attracted to short selling. If the price drops, you will make a profit. Whether you take a short or long position, it is essential to monitor your positions carefully and manage the stops properly. If you don’t do this, you run the risk that your profits evaporate when you want to close the position.
Tip 5: Watch out for counterparty risk
A CFD is a contract between you and the broker. The broker is therefore your counterparty and it is risky to execute all transactions at only one broker. In 2015, the well-known broker Alpari went overload and customers had to wait months before they got (partly) their money back. If you want to trade with a lot of money, it is highly recommended you diversify your funds and limit the default risk.
Tip 6: Take note of your available funds
Of course, this tip does not only apply to traders of Plus500, but to anyone who chooses to trade in CFDs. Take always sufficient account of your available funds in short-term investments. Unfortunately, many people go just one step too far, getting themselves in financial trouble. By determining the amount of money you can miss, you make sure you never get into serious trouble. Just like any other form of risky investment, trading in CFDs is only interesting when you do it with money you don’t actually need. Depositing your last savings on your Plus500 account is not a good idea.
When trading goes well and you’ve made a good profit, chances are you want to invest big amounts of money. You need to be aware that investing larger amounts also means running the risk of losing all your money. People become easily over-confident. Many have gone before us who thought it was a “sure” thing. Because of this, it never hurts to collect a certain amount of money from your Plus500 account and add it to a savings account. Money on a savings account may bring almost nothing these days, but you’ll always have something up your sleeve, especially when trading doesn’t bring the results you expected.
Do not invest in extremely small amounts either. Nowadays trading has become possible for a large audience. The fact that everybody can start trading, does not mean however, that it is suitable for everyone. A lot of novice investors have very limited capital to trade with. There are several reasons for this. Some people start investing at an early age, while they have no savings. Others just have a low income, and cannot afford to invest large amounts of money.
In any case, it is important for every investor to bear in mind that investing with small amounts is often not a good idea. Every broker charges a fee for keeping a position open. These costs can quickly stack up and eat up your profits. Only invest larger amounts of money that really make a difference. If you want to trade at Plus500 think of at least 500 to 1000 euros.
Tip 7: Panic is a bad advisor
Tip 7 is perhaps one of the most important tips. At some point anybody has to deal with losses. When it happens a kind of panic reaction overtakes you and chances are you immediately close a large number of positions. However, it is highly recommended for every trader to keep the head cool and not to react too impulsive, even when there are large losses. Sometimes a bit of patience can save you a lot of money. Keeping your emotions in check can really save the day.
Tip 8: Diversification is key
For all investors, new and experienced traders alike, it is essential to diversify your funds. Don’t put all your eggs in one basket as the saying goes. If you have a budget of 10,000 euros at your disposal, use only 1,000 up to 2,000 euros (10% to 20%) to trade in CFDs. The remaining amount can be invested in bonds, shares, precious metals, real estate and so on. Make sure that your investment portfolio sufficiently spreads your risks.
Tip 9: Do not invest in things you know nothing about
By reading our tutorial about Plus500 you have some basic knowledge about what CFDs are and how they work. As a trader, it is of the utmost importance that you understand the instruments that you are trading. Opening a position can be done by anyone, but it takes much more to get a profitable return. Many external factors have a direct or indirect influence on price movements. For example, a bad job report can significantly affect a currency pair or the hack of a Bitcoin exchange can implode the price of Bitcoin. By taking note of forecasts and breaking news items, you can make very interesting trades at the right time. However, you will not be prepared to follow up on such reports when it does not interest you at all. Once again, only trade in products or instruments that you have some basic knowledge of and take some interest in.
Tip 10: Don’t use too much leverage
The tenth and last tip refers to the risks of using too much leverage. If an unexpected price movement occurs, the loss on an open CFD position can quickly stack up. In some cases the stop price is activated but the position can only be closed at much lower prices, thus resulting in much higher losses than expected. In such cases, you may lose more money than what is on your account. It is therefore possible to build up debts with your CFD broker. Back in January 2015, this happened with the Swiss franc as Switzerland abandoned the cap on the currency’s value against the euro. It sends markets into turmoil and many traders had suddenly built up a mountain of debt. But rest assured, at Plus500 customers can never lose more than their capital. This way you avoid unpleasant surprises!