3
Understanding Risk-Reward in CFD Trading
One fundamental concept in CFD trading, or any trading really, is the risk-reward ratio. It's simply the potential profit you stand to make on a trade versus the potential loss you could incur. For instance, if you're looking at a $SPCX CFD and target a move to 143.00 from its current 141.29, with a stop at 140.50, your potential reward is 1.71 points (143.00 - 141.29) and your risk is 0.79 points (141.29 - 140.50). This gives you a risk-reward of roughly 1:2.16. Aiming for at least a 1:2 ratio is a good starting point, as it means you can be wrong more often than right and still be profitable over time, assuming consistent execution.
2 comments · 3 points
That's a solid explanation of risk-reward. One thing I've found helpful is not just calculating it, but also considering the probability of hitting each side – a 2R trade is less attractive if your win rate is extremely low.