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There is one simple trick to turn your trading around and prevent massive losses in your account – manage your risk. Risk management is the key to your success, controlling what happens if the trade goes wrong. It is the control of losing trades that allow the winning trades to grow your account. Without this control just one bad trade can wipe out your whole account.

Poor risk management is certain death for a trader. Just as a scuba diver must protect their air supply, a trader must protect their capital, it is equally important to long term survival. When trading any financial product or accessing any investment opportunity your goal should be to avoid large losses as your number one priority. Warren Buffet was famously quoted as saying, “Rule number one when investing – never lose money. Rule number two when investing – refer to rule number one.”

One of the greatest advantages of trading Contracts for Difference is the fact that you gain access to a huge amount of leverage if your risk tolerance allows. Unfortunately this leverage acts as a double edged sword and on the occasions that you are wrong. Your CFD losses will be magnified and this can result in very large losses. Irrespective of whether you are a brand-new to CFD trading or an experienced CFD trader your goal should always be to preserve capital and avoid large losses like the plague.

There are two things required to effectively manage your risk, one is to always use stops and two is to control your position size. Stops will prevent you from losing a large amount of capital on any one trade, provided they have been placed into the market. As a new trader stops become an essential part of your trading strategy. These are not negotiable, because the leverage employed when trading CFDs does not allow you to hold onto a position and wait for it to come back. You may be able to get away with this trading stock, but not with CFDs.

Placing a stop loss order controls your loss on a particular contract, but the second key is to control the number of CFD contracts that you trade. The more CFD contracts that you trade the more risk that you are taking on every time you enter the market. Controlling your position size will allow you to control your risk.