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CFD trading is an excellent financial tool which can help traders to achieve profitable trading objectives in a user-friendly environment. However, it comes along with several risks. Many analysts recommend CFD trading to skilled traders. For beginners, it is recommended to read all the fundamentals, strategies and tips involved in trading. We have gathered the top 10 CFD trading tips which a trader will need to survive in the financial market.
Complex financial derivatives trading, in short, is a contract where the trader makes a bet whether a specific financial asset like currency pair or stock will surge or decline in value. Trading CFDs does not involve trading in the real underlying tradable asset.
The list we have provided below contains the general tips. It is not hard and fast to follow them. You can make your own strategies and plans to earn billions. Those who promise that their tips will lead to instant profit are frauds. Never fall into their luring words and try to get out of their trap as soon as possible.
Tips for successful CFD trading
1) Choose a well-regulated Broker
Analyst advises that trading should be carried with a cool and peaceful mind. A well-regulated broker works in this direction. It guarantees the safety of your capital, funds, and also offers educational resources and guidelines for trading. Always look for the broker which offers you these types of features.
One such broker is T1markets regulated by legitimate regulatory authority, the Cyprus Securities and Exchange Commission. It offers trading on more than 300 tradable assets, including stock, commodities, indices, cryptocurrency at $250. Visit the site of the broker for more details.
2) Choose the Right Leverage
Leverage is a tool through which you can gather higher profits by spending a small amount. This profit is made out of the small price shift of the underlying security. However, this can work in the opposite direction, too, by magnifying your trading losses. So, you must select the leverage ratio wisely. A conservative risk profile is more appropriate for beginners. It means selecting the ratios like 1:100 or 1:50.
T1markets offers the maximum leverage of 1:500 on the professional trading account, 1:400 on Islamic trading accounts, and 1:30 on the retail trading accounts such as gold, silver, and platinum.
3) Have a trading strategy
Make sure that you have a proper strategy and plan before opening trade. It means that you should be aware of when to close the trade in both the worst and best scenarios.
4) Consider all the factors while making a trading plan
Your risk appetite, trading capital, trading goals, timeframe, and financial knowledge are some of the vital factors which you should consider while making a plan. It is also important to know your weaknesses too. CFD trading requires a completely different approach. So, if you are skilled in trading other markets, it does not mean that you can apply the same approaches to CFD trading as well.
5) Learn about the derivatives product
Financial and derivative products promote the efficiency of the financial market and also allows access to securities which would be beyond your reach otherwise. But, they also carry some volatility risks. So being well versed with these terms will help you to harvest more profit.
1) Maintenance margin or Variation margin
2) Rolling contract
3) Settlement date
4)Stop-loss and take profit
7) Going long or going short
8) Lot size
6) Never run after money
Always make sure that you stick to your basic strategy without running behind money. The biggest mistake which traders make is getting emotional and running behind the money without giving a single thought to what you are doing. Never do this and always abide by your rules.
7) Expect rainy days
There are days when your investments go totally against you. So, always try to keep money in your account to assure that you can generate a good profit on any margin calls.
8) Use a demo account before starting trading
Many analysts recommend that before jumping directly into the CFD trading, you should work on virtual or demo online trading accounts. Many financial service providers provide it. So, feel free to practice your strategies and risk management techniques with a demo trading account.
T1markets offer demo trading accounts along with professional, retail and Islamic trading accounts.
9) Use stop-loss orders
Another important tip in complex financial derivative trading is placing stop-loss orders. A stop-loss order is an order which is placed with a financial service provider to sell or purchase a particular asset once the asset reaches a specific price. It is designed to mitigate the losses of traders on an asset position. For example, fixing a stop-loss order at 10% below cost at which you purchase the asset will restrict your loss to about 10%.
10) Diversify your portfolio
CFD trading allows you to trade a wide variety of assets and markets. So, there are numerous opportunities for you to diversify your portfolio. It helps in mitigating the risk. And in a wider context: don’t rely on making earnings from this source. Complex financial derivative trading can result in really volatile returns; make sure this is not your only source of income.
The Bottom Line
Hopefully, all tips must be clear. As said earlier, half the battle is won in the financial market with suitable strategy. So always focus on building a strong foundation and have a robust plan before jumping directly into the trading arena because ultimately you will be putting your hard-earned money.
Top 10 CFD trading tips for all level of traders 2020 was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.