A lot of people are scared of CFD trading. There is a lot to learn, a lot to do and everything that you thought you understand better tends to change. This is why CFD trading has an aura of fear and anxiety surrounding it. Very scary indeed.
In this article, we would like to eliminate the fear factor of CFDs by providing you with a clear-eyed perspective of why these derivatives products are not as difficult as you think and what you need to do to succeed in them.
Understand What CFD Trading Is All About
First, make sure you understand what CFD trading is. CFD trading providers such as CMC Markets allows you to predict the future movement of market prices. You can go short, which means attempting to make profits by predicting the fall of financial market prices. You can also go long, which means attempting to make profits by predicting the rise of financial market prices. You see? It’s not as difficult as you think.
Why CFD Trading Is So Important
Second, make sure you understand why CFD trading is so important. Again it is simple. The Internet has made investing in commodity, forex, stocks, futures and spread betting a lot easier through online trading. Among other benefits, CFD trading allows you to make money regardless of whether the share market price is trending up or down.
The transaction costs are generally lower for CFD trading and trades are in real time. You can make a significant amount of money because there is no stamp duty to eat into your profits. So far, so good, CFD trading is electronic. And you need to consider it if you want to make money without any hassle.
CFDs Have Three Main Strategies
This is another important thing you must understand. These strategies are almost similar to the ones adopted by those who invest in more traditional financial products such as equities. They give you more exposure and flexibilities to larger profits as these derivatives products are traded with leverage. They include:
- A Hedging Strategy
- Trading The World’s Markets
- Pairs Trading Strategies
Now Let’s Make The Process Of Doing CFD Trading Really Simple
- Ensure you have an edge
You need a positive expectancy trading system when you trade on CFDs. There are several experts who are ready to strip money off you, so be disciplined, confident and diligent about your edge in the markets.
- Control your CFD leverage
Start small with your leverage and try your best to keep your total exposure as low as possible relative to your capital base.
- Use CFD stops religiously
If you are trading CFDs and your position moves against you, you could incur very large losses. You need to place a stop loss to magnify losses. This is one of the ways of minimizing risks.
- Establish clearly defined, realistic CFD trading goals
You need to know what you want to achieve, focus on it daily and eliminate all the things that distract you from achieving your set goals.
- Keep a CFD trading or share trading journal
A CFD trading journal or a share trading journal allows you to keep records of trades you have to make. They enable you to understand the reasons why you entered or exited a trade. These two also forms the most powerful learning experience you will come to remember the time you will become a successful CFD trader. What to record in your CFD trading journal include what you bought or sold, time trade was done, reasons behind the trade, profit or loss, and many other important things.
- Have a well-defined trading plan
Whether you are a mechanical system trader or a discretionary trader, you need to establish a well defined actionable trading plan. The plan should comprise of things like entry strategy, money management strategy, risk Management strategy, in profit stop loss strategy, and record keeping strategy.
- Be Disciplined
Now that you have formulated your CFD trading plan, you need to be disciplined and stick to it no matter the challenges you might face.
- Scale in and out of CFD trades
Trading accounts of most successful CFD traders are neutral for most periods of the year. However, there is a time where they make unbelievable profits. As a first-time trader, you don’t know the period when profits are unbelievable so you need to keep your PPC intact during throughout the year.
- Keep a positive mindset
When trading CFDs, don’t take it like it is the matter of life and death. Have some fun when doing it. Take your time to learn the essentials of successful CFD trading and all the time keep a positive mindset.