87% of retail CFD accounts lose money with this provider. Your capital may be at risk.
IQ Option is a trading platform offering several trading products, including Stocks, Forex, and ETFs.
If you’re looking to build a long-term portfolio, is IQ Option a great place to do so?
This guide covers the advantages and disadvantages of long term investing on IQ Option.
Table of contents
Long term investing on IQ Option
The stock market has risen by 7-9% annually over the last 100 years, making the long term investing a solid strategy for the patient investor.
The 7-9% annual growth in the stock market is, however, just an average.
In reality, there have been multiple corrections of more than 20% during this period.
These corrections make it a disadvantage if you’re looking to invest for the long term on IQ Option.
When you buy and sell stocks, forex, commodities, ETFs, or crypto on IQ Option, you’re buying a CFD of that particular asset.
CFDs work similarly to trading the underlying asset, but comes with one major difference – CFDs can be traded at leverage.
On IQ Option, all CFDs are traded at leverage, which means the result of your trade is multiplied by a factor depending on what asset you’re trading.
For most users, stocks have a leverage of 5 times, which means a 10% rise in the underlying asset results in a 50% increase for your position. Likewise, a 10% fall results in a 50% fall for your position.
Some countries and upgraded accounts can choose the amount of leverage they wish to use. The lower the leverage, the lower the risk.
With 5x leverage, a 20% fall from your opening price will make your position go to zero.
Therefore, you have to be lucky not to start trading right when the underlying asset is about to fall 20% or more. If you’re unlucky, you’ll lose all your money.
Studies show that no one can effectively time the market, which means you have to be lucky not to hit a bad time to invest for the long term.
A way to mitigate this issue is to invest the same amount every month, etc., but this can, obviously, still end in your positions going to zero.
The conclusion of this is that CFDs can, in theory, be used for the long term, but it is much riskier than trading the underlying asset directly because of leverage.
Furthermore, you have to have luck on your side, as investing right before the underlying asset drops a lot can cause your position to go to zero.
Also, the overnight fees you’ll be paying every single day will a significant factor over time.
If you do choose to use CFDs as your trading instrument of choice for long term investing, we recommend you invest over time, investing the same amount every month, etc.
For those who can choose the amount of leverage, they wish to use, consider not using too much leverage if your strategy is long term.
The advantage of using CFDs for long term investing is that results in several years will be much higher than what can be attained through regular investing – if you manage to not lose your funds before then, that is.
Lastly, investing in CFDs following ETF replicating the entire market or a large portion of the stock market tends to come with less volatility, which can be beneficial when trading CFDs.
CFDs are usually utilized by investors trying to capitalize on short movements in the stock market.
Disclaimer: Investerfy.com is not a financial advisor. All content on this site is for educational purposes only. Make sure you understand the risk associated with investing and trading. This post is not advice on how or when you should trade a stock, nor is it making any prediction of how any stock’s price will move in the future.