10 Rules For Successful CFD Trading


CFDs refer to derivative financial instruments where CFD stands for ‘Contracts for Difference’. In general, they’re priced on the basis of the underlying financial instruments they represent. Visit mt4 app

CFDs can be broadly classified as stocks, commodities, indices, forex, and cryptocurrencies. Nearly any asset that is traded in the market can be accessed as a CFD. You can predict the price movement of assets with CFD trading where there are two possible results: either the asset’s price. Remember that with CFDs, you do not take ownership of the asset but rather you only speculate on the prices. Here are some tips for trading CFDs profitably.

10 rules for successful CFD trading

First and foremost, you should be carrying out a very detailed and methodical analysis of the financial instruments that you will trade.

Macroeconomic variables that include interest rates, inflation rates, unemployment rates, and the overall economic performance of a country are crucial when it comes to making trade decisions. The financials of a company are also just as important when it comes to assessing the performance of CFDs.

Even though the fundamentals of trading CFDs are unchanged, whether or not they’re available on a trading platform is something that varies from one platform to the other.

  1. Develop your CFD knowledge

It is important to first fully understand what CFDs are and the way they function before you start trading. CFDs are a leveraged product, which implies that you can open a much larger position with just a small initial investment called margin. Whether you make a profit or a loss, both are calculated on the basis of the size of your position –hence, you should always remember that leverage can magnify profits as well as loss to the extent that they could go higher than the deposit for individual positions.

  1. Build a trading plan

A trading plan helps you identify the path for trading. It tells you when, where, and how to trade. It plays an important role in shaping your trading behavior and also helps in keeping emotion-based trading at bay. Here are some key aspects that your trading plan should cover:

  • Motivation
  • Time commitment
  • Trading goals
  • Attitude to risk
  • Available capital
  • Risk management strategies
  • Markets to trade
  • Trading strategy
  • Record keeping

Every trading plan is unique and should be prepared as per your financial goals and capacity. Even if the plan you’re following has been created on the basis of a fellow trader’s plan, make sure you made the effort to tweak and adapt it as per your own goals.

  1. Stick to your trading strategy

A trading strategy helps you identify and follow your trading style along with a methodology to enter and exit trades in addition to the tools and indicators that you may need. You will have to devise your strategy on the basis of the time you can spare for monitoring markets. Choose from a number of different trading styles that you may choose to opt for on the basis of the strategy you pick such as day trading, swing trading and scalping.

  1. Analyze the market

When you create your CFD trading strategy, you have to first determine the kind of analysis you will be willing to do so you can pinpoint the entry and exit points in the market. Traders use technical and fundamental analysis for this purpose. Fundamental analysis emphasizes larger events as well as factors like macroeconomic data, company announcements and breaking news. On the other hand, technical analysis looks at speculating what direction the market would take in the future on the basis of the historical price charts.

  1. Understand your total position size

Your position size indicates your trade’s overall market exposure. Whenever you start a new trade, remember to take into account how much capital you have as well as how much risk you are willing to take.

Each CFD trader must define the exact amount of capital they can put at stake on every trade. This should be made crystal clear in the trading plan as it reflects the amount that you might end up losing. Bear in mind that CFD trading is leveraged, hence your overall position size would be considerably more than your starting capital and you might lose more than what you commit to one trade. What traders typically do is they risk only a minimal percentage of their capital on a trade and mitigate risks using stops and limits.

  1. Risk management with stops and limits

Using stops and limits to a position are popular ways to cut down per trade risk. They can help in keeping your capital safe by already defining the exit levels for your trade. A stop-loss order instructs your broker to close your trade when the price turns out to be lower than the present market price.

  1. Start small

It is best to start small until you get the hang of how the market works. You can choose from a number of markets out there and it is safer to pick the ones you are already familiar with or are interested in.

  1. Track your open positions

Despite having stops and limits in place, make sure you keep reviewing your positions. If you come across any pressing issues or opportunities, they can be acted upon before the damage is done.

Also, ensure that there is enough capital in your account that also covers the overall maintenance margin needed for your position. In case your account goes below the minimum level of funds, you will be placed on a margin call. This means that if you don’t add more funds to your account, your position may be closed.

  1. Cut your losses

It is a sign of a good CFD trader, irrespective of the experience levels that losses are common. Your response to these losses is what could make or break your career. The key here is to stay focused and not act on emotions. Time is the best teacher!

  1. Start with a demo account

If you don’t think you’re comfortable trading in the live markets right away, use a demo account to test your trading plan and practice executing trades with the help of virtual funds. It is a great opportunity to experience how the market works in a risk-free environment at no extra cost.

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