CFDSpy Warns Against Overleveraging CFDs

Aug. 15, 2011 - PRLog -- Online CFD trading resource site CFDSpy.com has warned CFD traders to avoid overleveraging – one of the most commonly realised and fundamental mistakes of margined, leveraged trading – in order to protect their trading capital and guard against career-threatening trading decisions.

CFD trading, which requires traders to cover a margin of often less than 5% of a transaction's total size, lends itself to high profits and high risks, with even minor movements in the underlying markets causing significant profits and losses to be realised in a matter or moments. With the lure of substantial profits, traders often find themselves in trouble, having opened too many leveraged positions for their trading accounts to fund.

This can result in margin calls, the closing of otherwise profitable positions, and at worst legal action on the part of the broker to cover the monies owed, and can lead to significant problems for even the most experienced of traders.

A spokesperson from CFDSpy.com said that in light of the potentially devastating impact of overleveraging, traders should take care to ensure they trade in amounts they can afford to cover to prevent default and margin calls.

"Leverage is a fantastic tool, and one of the main attractions of CFDs as a trading instrument. With the sheer extent of leverage, it can be possible for 1 or 2 percentage point movements to deliver hundreds of percentage points in profit and loss, leading to a wildly volatile, wildly risky way to trade.  That said, provided you take care to cover all eventualities and you exercise caution in dealing with leverage, CFDs can be a highly practical and effective way to bolster your trading portfolio."

"The trouble with leverage is that it becomes too tempting to maximise your possible returns and up the ante. This is equivalent to going all-in in poker, and all-too-frequently claims the trading accounts of unsuspecting traders. The trick is to make sure you apply leverage in small manageable doses, in order to maximise your profits without unduly influencing your risk profile – that way, you can take advantage of the plus points of leverage without jeopardising your trading capital."

CFD Spy is an online investment resource and CFD site, offering a range of articles in trading strategy and advice in addition to comparisons between the web's leading CFD brokers.