Crystal Ball Markets
CFD tradingcontinues to make waves worldwide. CFD is an abbreviation for contracts fordifference. Many people flock towards CFD trading because it’s a lesscapital-intensive way of trading. CFD trading enables traders to benefit frommarket movements and price shifts. However, CFD trading is popular becausetraders can profit without owning the asset in question.
AccordingtoFinder, interest in CFD trading increasedby 193 percent in 2020. However,FCA, the body regulating the UK CFDmarket, suggested that 82 percent of clients lose money when tradingCFDs.
Since CFDtrading is still new, many people don’t know the secrets to success. Hence,we’ve prepared some tips to help traders become more successful with their CFDtrading endeavors.
A CFD trader
Top Tips for CFD Trading
Here are ourtop tips for CFD trading. They include:
Do Your Due Diligence
Many peoplethink CFD trading will be straightforward because they don’t own the underlyingassets. However, that’s not the case. If you don’t understand how CFD tradingworks, you’ll face severe losses. Make sure you understand CFD trading basics.You can use CFDs to trade forex, stocks, and other asset classes. However, tobe successful, consider narrowing down a niche or two. Specialize in these nichesuntil you gain experience. For instance, if you’re trading forex CFDs, makesure to learn about currency pairs and the factors influencing forex marketsbefore starting.
Follow a Trading Strategy
You’ll wantto create a trading strategy before trading. Like stocks, forex, or any otherasset class, you’ll need a trading strategy to follow when trading CFDs. Tocreate a strategy, select your goals first. Also, decide whether you want today trade or swing trade CFDs. You’ll have to tailor your strategy according toyour approach.
CFDs arederivatives. Resultantly, they have an overnight financing cost. Thesefinancing costs can affect your capital or bite into it based on the overnightrollover interest. Therefore, if you’re swing trading, your overnight positionsignificantly matters. If holding a long position, your broker will credit theovernight interest to your account. However, if you’re going short, your brokerwill debit the amount instead. These are some risks to watch out for when youswing trade CFDs.
Likewise,day trading also has its risks. For instance, most CFD day traders end upovertrading, resulting in them losing money due to bad trades.
Use a Demo Account
Beforeproceeding with live trading, make sure to practice. Demo accounts are an excellentway to gain familiarity with the market with little risk. Most brokers willallow you to use demo accounts for trading. Demo accounts enable you to tradewithout risking your hard-earned money. You can also use these accounts to testdifferent trading strategies to find one suitable for you. In addition, you canassess your performance in the market before you trade in real-life.
We recommendsetting the same budget in your demo account as your investment capital in reallife. For instance, if you’re planning to trade with $1000, set $1000 as yourbudget in your demo account. By doing so, you can evaluate your performance andget an idea of realistic returns.
Limit Leverage
Many traderslike to use leverage when CFD trading. Leverage can be beneficial because itenables you to trade more than your investment capital would allow. However,exercise caution when using leverage. Sometimes, traders get stuck in the loopof believing the more, the better. However, that’s not always accurate. Havinghigh leverage can affect you because even the slightest unanticipated priceshift could cause you to lose all your money. In CFD trading, leverage levelsof 400:1 are not uncommon. However, that’s unnecessarily high leverage. Most UK/EUregulators have imposed a 30:1 leverage limit. New beginners should try to keeptheir leverage under 10:1.
Know Your Trading Costs
Tradingcosts aren’t as clear-cut in CFDs because of numerous variables. When tradingCFDs, keep an eye on your spread cost. The spread cost represents thedifference between the bid and the asking price.
A trader looking at charts
Focus on Risk and Money Management
Many tradershave misconceptions about CFD trading being less risky than other types oftrading. That’s because they don’t need to purchase the underlying asset toprofit from it. Resultantly, they focus chiefly on profits while neglectingrisk management. However, that can be disastrous.
Like anyother form of trading, CFD trading also requires excellent risk managementprinciples. The Random Walk Theory states markets are unpredictable. You canuse fundamental and technical analysis to gauge the market and predict futuremovements, but they aren’t always accurate.
Hence,managing risk is crucial when trading CFDs. Most experts recommend sticking tothe one percent or two percent rule when trading CFDs. Following these rules,you limit the money placed in a single trade. For instance, let’s assume youhave $1000 in trading capital. Under the one percent rule, you’ll only invest$10 in a single trade. Doing so helps reduce your trading risk while increasingyour trading longevity.
Another wayto reduce risk is by using stop-loss orders. Stop-loss orders help you reduceyour trading losses. You can place stop-loss orders with your broker. Theseorders help limit your loss if the market moves in an unfavorable direction.For instance, let’s assume you have bought CFDs for the GBP-USD currency pairat $1.3541. You believe the price will increaseto $1.3700. If the currency pair falls, you will lose a significant amount ofmoney. Hence, you can create a stop-loss order with your broker at $1.3500.Once the currency pair price hits this amount, the broker will automaticallysell your CFDs and close out your position, preventing you from incurringsignificant losses.
A person trading stock CFDs
Start CFD Trading with Crystal Ball Markets
If you’re interested in CFDs trading, you’ll need an online CFD brokeror an online CFD trading platform. In such an instance, we can assist you. CrystalBall Markets is one of the best brokers forCFD trading. In addition, we also have tools that aid youwith CFD market analysis. Our tools and resources can support your CFD online trades.You can use our platform to invest in indicesCFD, cryptocurrency CFDs, or do CFD share trading.Visit our website to learn more. Alternatively, register with us today to get started.
