{"id":308,"date":"2021-08-08T18:35:47","date_gmt":"2021-08-08T16:35:47","guid":{"rendered":"https:\/\/cfd-trading-blog.com\/?p=308"},"modified":"2021-10-23T14:12:30","modified_gmt":"2021-10-23T12:12:30","slug":"welche-risiken-gibt-es-beim-cfd-trading","status":"publish","type":"post","link":"https:\/\/cfd-trading-blog.com\/en\/cfd-education\/what-are-the-risks-of-cfd-trading\/","title":{"rendered":"What are the risks of CFD trading?"},"content":{"rendered":"
CFD trading is a very risky speculation object despite its increasing popularity. The risks of CFDs should not be underestimated and should be known to every CFD trader. CFDs (or contracts for difference) are in fact a financial product based on an individual underlying asset, on whose price trend the trader can speculate.<\/p>
The trader can either bet on rising prices (also called \"long\") or on falling prices (also called \"short\"). Unlike other financial products, however, the potential trader does not acquire ownership of the actual underlying asset such as crude oil, gold or the ETF in question, but merely buys into its price trend.<\/p>
CFD trading itself is always free for practically every investor. For this purpose, only the registration with a CFD broker is necessary, in order to then start CFD trading via the own trading account. A great advantage of CFD trading: This is also possible with leverage! What this means exactly and what immediate risks such as margin call, overnight financing or total loss of the CFD trading has altogether, more information in the following sections.<\/p>
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Market volatility describes the constant price fluctuations to which the market as a whole is exposed. This includes price rises as well as price falls or sharp price drops in the meantime. Market corrections also occur regularly in open markets and sometimes cause strong price movements, which cannot always be predicted without doubt by the potential trader.<\/p>
Generally, one wants volatility for CFD trading. Trading with a CFD is based on this price speculation, but thus also subject to unpredictable risks.<\/p>
In CFD trading, the profits of a trade are often concentrated on the fourth decimal place (also called \"pips\"). Thus, even very small price changes, sometimes with great leverage, can already be traded profitably. However, if there are huge price jumps as a result of strong price fluctuations, the trader quickly runs the risk that his position will suddenly go into the red.<\/p>
The dangers are thus represented by the following situations in particular when market volatility is high:<\/p>
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The possibility of leveraged trading is both a curse and a blessing in CFD trading. In the European Union, for example, traders are allowed to trade with a leverage of 1:30. This means that one thirtieth of the trade volume must be deposited in the form of equity (also called \"margin\"). The trader borrows the rest from the CFD broker during the trade.<\/p>
Through CFD trading with leverage, of course, much higher profits on the invested equity can be achieved. However, in the negative case, the losses also increase immediately. Quickly it comes due to the margin call (the demand of the deposited margin of the trader from the CFD broker) so to the total loss.<\/p>
The risk of trading with a CFD should therefore not be underestimated under any circumstances! According to the regulation by the \"European Securities and Markets Authority\" (ESMA), there is no longer a margin call obligation. However, the total loss of the capital deposited in the form of margin is still possible! In order to reduce the individual risk in CFD trading, it is therefore essential to pay attention to the correct risk management.<\/p>