Even though CFD gives you an option to earn higher profit, but it comes at the cost of huge risk as well. These tips help a novice trader/investor to understand the concept and working of CFD better so that you can use it to the best of your capacities. CFDs can be used in many different financial markets and so can be these tips. However, following them is based on your discretion.
The tips and tricks which can come in handy in CFD trading are:
- Use stop-loss orders for CFD
This is the first and foremost tip and CFD trading advice to be followed. Using a stop loss can help the trader in minimizing his/her losses, thus staying in the game for longer. Before entering any trade, make sure that there is a crystal clear CFD stop assigned to it. This makes sure that your emotions stay in check and you save yourself from unpredictable losses. The technical analysis comes in very handy to determine these stops.
- Use a Demo Account first
Before moving further, it is quite imperative to start a CFD trading career with a demo account, that many providers offer. So, without risking your money in actual, it’s a good start to test the CFD trading tips and tricks.
- Limit the leverage
Leverage can come in very handy while trading with CFDs. It can be a huge asset if the trader scales down on leverage to a level that is acceptable to his/her risk tolerance profile. It is very enticing when the trader is winning on his trades, but it must never be forgotten that the loss is inevitable and it might occur on the next trade. So, a trader must set his/her leverage very judiciously because one bad trade and it will swamp away all the earnings of the past too.
- Establish realistic goals
Setting goals is quite easy like earning a profit of huge amount but those objectives must be realistic at the same time. Setting clearly defined and rational goals will help the trader in setting up a course of action and ultimately help in formulating apprehensive strategies.
- Maintain a journal
It is always good to record all your trades. This helps in tracking the steps that the trader undertook during each trade including the reasons for entering and exiting each trade. Also, it would be a powerful educator giving ideas, explaining the mistakes committed in the past, and a great help in setting future goals. However, it must include the type of instruments traded, the time of entering and exiting a trade, profit, or loss analysis of each trade, and a description of the personal experience of the trader.
- Be Positive
This might sound philosophical but it’s a pragmatic tip. There will be many situations wherein you could have earned a little or lost a little less. But such situations are bound to happen, so a trader shouldn’t lose hope or beat himself for those. Calm down, it happens with one and all. You’re learning and things are expected to go the other way. Be patient and steady and things would turn in your favor soon. Use positive affirmations on a daily basis to have a positive mindset.
These tips along with the trader’s personal experience can make him/her a pro at the CFD trading business. It is important to be rational and to calculate the pros and cons of each trade before actually performing it. It’s better to be late than regretting it later.
CFD stands for Contracts for Difference. CFD trading is the buying and selling of contracts of difference via an online provider. When you trade CFDs, this means you are stepping in into an agreement to exchange the difference in the price of an asset from the point when the contract is opened to when it is closed.
In CFD, the buyer and the seller participate only in the movement of the price of the share and not on the stock itself. The movement can either increase the price or decrease the price. If the price increases then the seller has to pay the difference in price to the buyer, and vice versa, i.e. if the price of the share decreases then the buyer has to pay the difference to the seller.
Holding a CFD for 4-6 weeks is ideal because afterward, it levies the financing charge and will start to become expensive for you to hold a CFD more than that. Consequently, holding CFDs for a longer period of time is not ideal.
Margins in trading are the amount/deposit required to open and maintain a leveraged position using products such as CFDs and spread bets.
The spread, in CFD trading, is the difference between the buy price and sell the price of an asset. The buying price in this will always be higher than the selling price.