Top 10 CFD Trading Mistakes to Avoid

Categories: CFD Trading  

Tags: CFD trading Malaysia  CFD trading  

Publish date: 2023-3-23

CFD trading can be very lucrative and risky at the same time. While dealing with CFD trading, it is very important to learn from the mistakes and avoid them in the future in order to grow as a CFD trader.

Here's the Top 10 CFD trading mistakes you would like to avoid at all costs. Read until the last mistake because it is especially important to know so that you can see the big difference between a new CFD trader and an experienced one.

  1. Trading Without a Plan         
  2. Not Having Control over Your Emotions
  3. Herd Behavior
  4. Did Not Research Properly and Deeply
  5. Too Much Leverage
  6. Not Utilizing Stop-loss
  7. Spread Risks
  8. Losing money on trades that could have been profitable
  9. Not Writing a Trading Journal
  10. Not Using a Demo Account

1. Trading Without a Plan

One of the biggest mistakes a new CFD trader can make is trading without a plan. As an analogy, a successful business starts with a successful business plan. While a successful business plan should include things like market research, marketing, sales strategy and risk assessment.

To convey it in terms of CFD trading, market research should be conducted before you trade. A trading plan has to be put in place to determine your trading strategy such as when to enter and exit trades, as well as how much risk to take on each trade. Without a plan, it is very easy to get overwhelmed by the market and make poor decisions.

2. Not having control over your emotions

It is common to suffer from losses when you are trading CFDs, cryptocurrencies or indices. In times like this, most people will get caught up by the feeling of not wanting to lose and try to earn the profit back by trading more and more. However, most of the time instead of earning the profit to cut loss, they usually suffer more loss from the trades. This is because when you get caught by the strong emotions, it will be very hard to think objectively and as a result your judgement will be clouded.

Thus, it is very important to keep calm and take control over your emotions, especially times like this. This not only applies to negative scenarios, it is also very true for those who are too excited from earning a lot of profit from the trades. If this happens, please hold back from trading more until you have calmed down. Otherwise, it is very possible to make a bad decision when you trade emotionally. It requires you to have a great control over your emotions in order to be good at CFD trading.

3. Herd Behavior

Herd behavior is a psychological term. To explain it in an easy way, it basically means a behavior of following what others are doing instead of making your own independent decisions. Have you ever had a scenario where people tell you to buy and hold stocks from companies you don't really know about, but you kind of trust them because everyone else is doing the same thing? The point here isn't really about not trusting other people or whatnot, rather you should do your own research and make your own decision when making every trade without the influence of other people.

Think about all the other expert or world-class traders or investors you know about, do you think they made their success by following others' opinions? Certainly NOT! Thus, it is very important to think and analyze objectively in your own way before making your trades.

4. Did Not Research Properly and Deeply

There are some cases where traders will open or close a position by their gut feelings without doing their research. To be honest, what they are doing is not trading, but gambling under the disguise of trading. While it might be a profit sometimes because of luck, it is essential to have some sort of data analysis or evidence before committing to a trade if you really want to become an experienced trader.

There are also cases where people tend to do their research in a very "shallow" way, meaning not putting enough effort to have enough information to back up your trading decisions. Research should be conducted deeper in order to truly understand the market. Some of the questions you might want to ask yourself during your research:

  • Is the market in a high degree of volatility or in a stable state?
  • What is the market trends or pattern of the particular asset?
  • Any factors that might affect the asset price like economic events or industry news?
  • What is the market sentiment of the asset?

5. Too Much Leverage

While leveraging is one of the benefits for CFD trading, forex trading and stock trading, it can also be risky at the same time. It is a double-edged sword, which most beginner traders tend to forget about the negative consequences and only look at the positive outcome. Even though leveraging can increase the profit earned, it also amplifies the losses if things go wrong.

The best way to start utilizing leverage is to start small in order to get familiar with it first. Only after that you will understand how it works. Then you can increase more leverage to gain more profit. It is important to take note of the losses to prepare for situations when trades go against your prediction.

6. Not Utilizing Stop-loss

Utilizing stop-loss is essential for managing risk in CFD trading. By setting a stop-loss order, you can limit your losses if the market moves against you. For example, it can help to close your position automatically in order to minimize your risk by cutting losses. Without a stop-loss order, you could incur large losses if the market moves against you.

On the other hand, you can also attach a limit to your position, which helps to automatically close your trade after a certain amount of profit. So it is a very useful tool for the traders, and it's one of the most effective ways of reducing risk of trading.

7. Spread Risks

Spreading risks is one of the keys to success in CFD trading and any other trading or investment. By diversifying your portfolio, you can spread out the risk across different markets and asset classes. This will help to reduce the overall risk of your portfolio while still allowing you to take advantage of opportunities in the market.

As an explanation, the reason why diversifying a portfolio can help to reduce risk is because it allows the other asset to cover the losses of one or few assets that are suffering the loss from the trades. As the saying goes, don't put all your eggs in one basket.

8. Losing money on trades that could have been profitable

You are not alone if you are making this mistake. Large financial institutions are not immune to this rookie trading mistake.

How often have you entered the market at the right time, made a good paper profit, just to have it all wiped out by a sudden reversal? I will bet that happened more than once.

The first big mistake you may make trading the financial markets is letting a good trade go bad. Yet there is hope. Preparation is key to avoiding a repeat of this blunder. Prior to entering a trade, you should have a clear plan for when to get out. Also, you really need a lot of excuses to leave.

Traders need to create their own trading exit strategies that help them meet a goal, regardless of how the deal turns out.

Exit trading strategies are crucial for any trader to maximize their profits and minimize their losses. Here are three simple and effective exit trading strategies:

  • Trailing Stop Loss: A trailing stop loss is a strategy where a trader sets a stop loss order at a certain percentage or dollar amount below the current market price. As the market price moves in favor of the trade, the stop loss order moves up, trailing behind the current market price. This strategy allows a trader to lock in profits as the market moves in their favor while also limiting their potential losses.
  • Take Profit Order: A take profit order is a strategy where a trader sets a sell order at a certain percentage or dollar amount above the current market price. When the market price reaches this level, the order is executed, and the trade is closed out at a profit. This strategy is useful for traders who want to lock in profits and exit the market once they have achieved their desired level of gains.
  • Time-Based Exit: A time-based exit is a strategy where a trader sets a specific time limit for a trade. If the trade has not reached its profit target or stop loss level by the specified time, the trader exits the trade regardless of its current price. This strategy is useful for traders who want to limit their exposure to the market and avoid holding positions for too long.

It is important to note that there is no one-size-fits-all strategy, and traders should consider their individual trading style, risk tolerance, and market conditions when choosing an exit strategy.

9. Not Writing a Trading Journal

A trading journal is very important when it comes to tracking your trading records and analyzing your mistakes or success. By writing a trading journal, you can reflect on your trading mistakes and learn from it while also copying the success formula from the profitable trades.

Your trading journal should include information such as:

  • Date and time of the trades
  • What is the asset being traded
  • Position size of the asset
  • Chart trend at that moment
  • The reason why you trade at that moment

Then, you can look back and review the particular trade that does not align with your expectations and study the fundamental concepts of the reason behind it.

10. Not Using a Demo Account

Last, but not least, not using a demo account is the biggest mistake a beginner trader could make. Imagine I told you there is a place where you can learn to trade for free, and there is no need to pay a single cent even if you lose a trade?

That is 100%  true when you use a demo account for trading simulation to gain experience for free. The chart position is according to real life scenarios so once you master your CFD trading skills in the demo account, you can go straight into the journey of trading.

One of the most reliable platforms to create a trading demo account in Malaysia is FXCM. Not only is it free, you can get practical real-life trading experience right away if you are actually serious in putting effort into learning CFD trading.


CFD trading is a great way to make profit, but it involves high risk and can just as easily make losses. To become successful in CFD trading, it is important to understand the market, use proper risk management and practice with a demo account to gain experience. While the common mistakes of CFD trading have been discussed above, it is very likely you may not be able to avoid them all because everyone makes mistakes, but the most important part is to learn from the mistakes and turn them into your experience.