5 Important Reminders Before You Start Trading CFDs

Over the years, people are starting to recognize the benefits of CFDs which resulted in their boost of popularity. But CFD trading is not for all. It is too risky to be taken lightly. If you are planning to try this type of trading, you need to check out these golden rules before you start investing your money.

More Knowledge About CFD is Important

This is not just applicable to trading. Even when you are starting a new business venture, it is imperative to first know more about the business that you are going to take over. Knowing the basics, like how it works or how you can profit from it allows you to take advantage of it fully.

In Contract For Difference, you can trade in a range of markets such as indices, commodities, shares, Forex, and more all in one platform. You can also profit from the rising and falling market.

Since CFD is leveraged, retail traders are allowed to start trading even if they don’t pay the full amount of the asset they are trading.

Create and Follow a Trading Plan

Although other traders think that it’s too time-consuming to conceptualize a trading plan, you get to benefit from it in the long run. Inside your trading plan is your trading strategy that needs to be followed strictly no matter the condition of the market.

More importantly, with a trading plan, you get to avoid trading with unnecessary emotions attached. After all, when emotions start to consume your mind, you are leading the way to disaster.

Timing Your Trades Through Proper Market Analysis

Market analysis is included in your trading strategy. You need to decide which market analysis you will use to identify the right entry and exit points. There are currently two types of market analysis –fundamental analysis and technical analysis.

Fundamental analysis is focusing more on external events like breaking news, company announcements, and other macroeconomic data. Meanwhile, technical analysis is trying to predict the direction of the market through the use of historical price charts. Technical analysts believe that the past price data repeats again.

Be Mindful Of Your Position Size

The overall market exposure of a trader depends on the position size that you take. Therefore, before you open a trading position, you must check your available capital first together with your risk appetite in CFDs.

There is also leverage that you have to consider. Remember that leverage mirrors gains but it also mirrors losses. It is wise if you open a small position if you are still a newbie and gradually increase the size as you learn more about the market.

Utilize Stop-loss Order and Limit Orders

Because you cannot totally eliminate losses in all your trades, the best thing you can do is to employ a stop-loss order and limit order. They are pre-defined exits so you can protect your trading capital. A stop-loss order instructs your broker to close down your trade when a specific price is reached. In this case, you should set these orders according to your risk appetite.