Trading CFDs is increasingly becoming a financial instrument of choice for many investors in the UK. But as lucrative as it is, it comes accompanied with its very own unique risks and challenges; and mostly because it’s never a get rich quick scheme.
Hence, for you to build a solid trading foundation on the market, it needs a combination of commitment, and the willingness to learn. Beginners can draw on the experience of many successful traders and pundits in the industry, including the tried and true tips and strategies.
Meanwhile, first things first;
What Is Trading CFDs?
Trading CFDs, also known as Contracts for Difference, involves speculating on the rise or fall of prices in various financial assets. These assets are usually in the form of share CFDs, stocks, commodities, indices, currencies, among others. Depending on your broker, you can access more than 10,000 trading instruments from across the world.
CFD trading allows you to have the same trading scope and to use the same products that you’d normally use on the stock market. What is more, CFDs are a leveraged product, so obviously your broker allows you to trade on margin, raising chances of raking in huge profits.
Tips and Strategies
The following tips and strategies can be quite useful:
- Determine and Master the trends
The daily chart is quite powerful in disseminating data related to the direction of the market. For example, if you carefully observe the price action, you can see that for specific periods, the market is either moving higher, or lower, sometimes for three to four days without breach.
Such a trend can be useful for those traders with short-term trading strategies. In the same manner, long term investments should match long-term time frames. The best way to determine a trend is to keep it quite simple.
- Make Consistent Use of Stops
Stop losses can be quite significant, as they help in minimizing losses while you are trading CFDs. Ensure that each CFD trade you enter has a clearly defined stop which is assigned to it. The reason you need to have these crucial aids/tools is that in the face of a falling market, you can quickly get emotionally charged, rapidly losing control. Proper utilization of technical analysis can help you to define the most reliable stop-losses.
- Conduct Individual Analyses
You can end doubting your ability to make the right decisions, especially if you are fond of listening to other voices/noise on the market. Of course, attending to other ideas can improve the way you carry out your trades, but this should only be up to a specific limit.
The best way, therefore, is to conduct extensive research and analysis, both fundamental and technical. This can give you more insight, rather than hanging on to what other people have to say. To get your way around, try access research reports, reputable international news reports, articles on the web, and other sources that can aid you.
- Have Well-Defined Trading Strategies
These include entry and exit strategies. You can even test them to ensure that they work. Use your demo account to backtest various amounts of entry and exit setups using several years of data.
Other than that, have a powerful money management strategy, too.
It allows you to decide how much you can invest, as well as how much you are willing to risk on each trade you enter. Another useful strategy is risk management, and it’s mostly subject to your money management rule, as well as the use of stop losses, and lot sizes.
The best thing with trading CFDs is that you have access to high leverage. But the tricky part is how to make it work for you. So exercise lots of control on leverage use as much as you can.
Then, also understand that in this market, there are rainy days and dry days. On some days, your investments can decide to riot and go against you. Therefore, have sufficient equity in your trading account just in case you encounter margin calls.
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