Since trading options like forex, CFD, cryptocurrency, and shares became popular digitally, many started exploring the markets to their advantage. A trader can indeed make a lot of money from trading. However, knowledge, expertise, time, and strategies are essential to ace your trading activities.
Like gambling, many started trading because of the news that it could profit you. Aside from forex, CFD trading is one of the options many people love because of its leverage options to boost their gains and losses. Because of its boosting success to many traders, many have officially relied on CFD trading as their full-time income source.
Relying on trading as your full-time income source is not a problem because financial requirements vary on every person’s needs. But if you have many other financial responsibilities, relying solely on CFD trading may not be the best option. If you’re considering doing so, this post is for you. Here are some risks of relying on CFD trading as a full-time income source.
1 – Low industry regulation
One of the risks of relying on CFD trading as your full-time income source is its low industry regulation. Regulations on CFD vary from country to country. Other places don’t legalise and regulate CFD trading because of its contract nature.
If, for example, you acquire a CFD of a company’s stock that does not regulate it, you can’t expect to gain a profit anytime soon or even expect to gain back your initial deposit when trading regulations change with your broker.
2 – Market volatility
Investopedia states that the market for CFD trading is fast-moving and requires close monitoring to maximise your trading. If the market is volatile, you need to monitor it 24/7 to make the best decisions when to place orders that could provide you the best profit.
Market volatility is usually equivalent to higher risk. That’s why, before making a CFD trading account, it’s best to learn and review its past market performance to understand how the market will perform in the coming months and years.
3 – Lack of liquidity
As I mentioned, the CFD trading market is volatile since it has underlying assets like stocks and shares. However, there’s a disadvantage to that. The trade volume for CFD contracts could decrease if the market is volatile. The low industry regulation of CFD also contributes to this data.
If there are low trades for the underlying asset of your CFD, your contract could become illiquid. When that happens, you might have to increase your margin payments to maintain the contract. The worst that could happen is you close the contract at low prices because of its status.
4 – Less or inconsistent profit take
Gapping is the term used in CFD trading to refer to when the price of CFD falls before your trade takes place at the price you agreed on. It happens because of the fast-moving nature of financial markets. When that happens, traders encounter less profit than their agreed price due to market changes.
If you rely solely on CFD trading as your income source, you can’t expect to make a consistent profit take. If you have bills to pay and rely on trading, this is not the best income source you should have.
5 – Trading money risk
Similar to my first point, some countries don’t legalise CFD trading. In countries that do, some laws protect a client’s money from harmful and illegal practices that brokers could do. Unfortunately, despite those rules, some don’t have regulations prohibiting brokers from pooling their clients’ funds into one or more accounts.
Investopedia says that without that regulation, a broker or provider can withdraw and has the right to request further margins from their pooled account. They add that if other clients fail to meet their margin calls, the CFD broker or provider can draft the pooled account with the possibility of affecting client returns.
6 – Encounter scams and issues with the wrong broker or provider
Last but not least is the possibility of encountering scams and problems with your CFD trading broker or provider. Sadly, there are now many trading scams online that emulate the operations of legal providers. Because of that, the rate of trading scams today is continuously increasing.
If you fall into this trap, you won’t receive a profit and lose more money than you plan to. That’s why it’s critical to find a broker and provider that is reliable, legal, professional, and one that will give you the best CFD trading experience.
Maybe it’s best to make CFD trading a sideline before relying on it as a full-time income source.
Aside from these six points I shared, there are other risks that you can encounter if you rely solely on CFD as your income source. Instead of ditching your full-time job, it’s best to know the market and trading world first before putting all your cards into trading. That way, you can keep your stable income and practise and observe how the market works.
Written by Bianca Banda
