Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Using trading and investment products

Lesson 6 of 6

Is combining trading and investing right for me?

Because of the risks involved, a strategy that combines trading and investing is not for everyone. It’s important to have a strong financial foundation before adding leveraged products to your portfolio. You should also make sure that you have the financial stability to withstand the increased risk of loss when you add derivative products to your portfolio. In order to determine this, you could consider the following:

  • If I lost my income, I’d be able to pay my living expenses for at least three months
  • If I got into an accident or something happened to my belongings, I have the right short-term and long-term insurance to deal with the financial impact
  • I have long-term savings specifically set aside for my retirement
  • I’ve taken advantage of all the tax-free or tax-efficient investment allocations available to me
  • I have an appropriate long-term investment strategy suited to my financial goals and needs

Homework

Your success in using both trading and investment products will depend on how well you understand the correlation between the shares you own in your long-term portfolio and those you prefer to trade instead.

Play around with this tool to see how different asset classes correlate to one another. If you ran this experiment with your favourite share and currency pair, do you understand how the one would affect the other?

Lesson summary

  • Derivatives are complex products, so it’s important to have the right knowledge before trading them
  • Only add derivatives to your portfolio if you can handle potentially losing large amounts of money
Lesson complete