With CFDs, you trade the price movement of an asset without actually owning it. Be it stocks, indices, commodities, crypto or forex, all these are available through a single, efficient contract type. Well, efficient until beginners mistake it as a swift route to riches.
If it is to be a long term investment for wealth creation, then indices trading account positions is not a good option.
As CFD are speculative product.
Confusion with Ownership
This is the most common one. You might be in a trade of a Tesla CFD because you believe that the stock will go up, but you never become a shareholder. You just hold the value.
If you wish to carry out a long-term investment plan, CFD is not for you.
CFD trading is more of a speculative tool that can give good returns in a short span of time.
Not Factoring in Overnight Fees
When you hold any open CFD position over the market closure, you will have to pay a swap or financing fee. This is a cost that beginner Malaysian traders often ignore. Later they blame their profitable trades for being marginally profitable even after 2 weeks of trade. Before even trading an open position, you should make sure you have checked its swap fee in the fee schedule.
Leverage is Not Free Money
Like inforex trading, CFD also involves leverage, and is also one of the traps beginners fall into. Most Malaysians get excited about brokers who offer CFD with high leverage as 1:100, 1:20 etc. But the downside is that leverage amplifies the losses as much as the gains. Many beginners trade on account of their capital rather than the loss they can afford.
Trading in Too Many Markets
In the beginning of the CFD trading, many beginners tend to open an account with a broker and immediately start trading gold, index, pairs and cryptocurrency at the same time. This is not advisable as you will not be able to follow the market of any particular instruments. Learn about any pair and focus on it before learning about another.
Forgetting Spread in Smaller Accounts
A wide spread can eat away small accounts very fast. Especially when you are scalping and frequently enter and exit trades with smaller stop loss, spread is going to make the losses larger, even before market starts to move. You should select the CFD instrument that fits with your account size and trading style.
Bypassing Legal Aspect
As you already might be aware, Securities Commission Malaysia (SC) does not regulate CFD trading in the same manner as any conventional investment. Most of you might be trading with an offshore brokerage firm which, say is regulate by ASIC (Australian Securities & Investments Commission). It would be essential that you conduct your research of the broker regulation in place before putting in your first trade.