The digital age has opened new opportunities for traders. One type of trading that has gained much interest in the past few years is Contracts for Difference (CFD). CFD trading is an agreement to exchange the difference in a financial instrument’s opening and closing price. It gives you the chance to trade with the share price moves without having to buy and sell your shares. It boasts its accessibility and speed of transaction.
Before you get yourself involved in CFD trading in your chosen platforms, you might want to check platforms like CMC markets and learn a few tricks on how to handle varied situations:
- Before you open a trade, make sure that you have a trading plan mapped out. You should decide on your objectives (how much do you want to earn at the end of the trend), entry points (when should you begin the trade), and exit points (when and how will you exit).
Your plan should be in line with your personal profile. Use your strengths to your advantage. If you’re good at short-term trading, then stick to it. Finally, use this plan all throughout the session. Do not let your emotions sway you and change your decision while you’re in the middle of the trade.
- Start small and minimize using leverage. While it’s true that CFD trading in leverage allows you to access greater funds than what you normally could, which is good, it can also lead to a grave loss, especially if no clear marketing strategy is employed. Use the rule of thumb and only use about 2 to 3 times leverage using your account. Moreover, spread it to more than 2 different positions.
- In any type of trading, you have a chance to lose. The best thing you can do when it does happen is to ensure that your losses are minimal and your returns are greater. After all, you can’t say you’re a successful trader if you have more losses than winning. Just don’t be afraid to admit that you made a wrong move and lost. Use your experience to improve your next trading strategy.
- Make a liquidation of the market. If you see that there’s a small-cap stock, don’t put a big market size on it. In fact, it’s better to stay clear of positions that seem to be against you as the risk is higher.
- If you’re a beginner in CFD trading, then trends are your best friend. Follow it as it will lead you towards the right positions to take, when to enter, and when to issue stop.
- Do not be afraid to use stops. When you feel that you are losing, get out of the market. Stops allow you to protect your downside. To get your initial stop correctly, you have to position it far enough so that it’ll not trigger too soon, but close enough so that you will not lose a huge amount of money.
- Do not trade in too many markets. When your account has positions in the US, China, and Germany, for example, you will only be spreading your interests thinly. Put your money in a sector you feel secure.
- A great percentage of CFDs are long positions, which is because traders wait for the market to go up. However, you must never be afraid of short selling your stock when you deem fit.