CFDs are becoming more and more popular every single month because of the countless benefits offered to traders. However, CFDs trading strategies all have associated risks. It is very important that you trade only after you have the necessary experience to do so. CFDs are quite complex and it takes a lot of practice to get on the profitable side of the scale. With this in mind, you should be aware of everything written in the following paragraphs.
Start With Developing CFD Knowledge
CFDs (contracts for difference) are derivative products that allow you to speculate on various different markets, like shares, indices, cryptocurrencies, commodities and FOREX. The big advantage is that you do not have to own the asset that you trade. A position can be taken on falling and rising markets. Both of these allow you to make a profit.
Remember that CFDs are leveraged products. This means that you can win big and lose big. This is why you absolutely have to know as much as possible about contracts for difference before you consider trading.
Use A Trading Plan
You need a trading plan because it offers a clear path on what, when, how and why trading should be done. You can shape the behavior you have and avoid the unwanted situation in which you trade based on your emotions. The trading plan that you create with CFDs is vital for success and should always be respected.
Keep in mind that every single CFD trading plan is completely unique and based on the individuality of the trader. You can base the trading plan on one created by someone else but it needs to be adapted to your own risk tolerance.
Time Trades Based On Market Analysis
As the CFD trading strategy is built, it is important to decide what analysis you make in order to identify exit and entry points. 2 analysis types are used by traders: fundamental and technical. The fundamental analysis is based on external influences and events, like company announcements and macroeconomic data. Technical analysis tries to predict market future direction based on historical price charts.
Understand Total Position Size
Position size is defined as total market trading exposure. As you open a CFD position, you have to consider the capital that you have to work with and the risk that you are comfortable to take.
CFD traders have to outline the capital that is risked on every single trade. The money that is put into the contract is also money that you can lose so you have to be sure that you afford that.
CFD trading can be leveraged. This means that position size is higher than the initial deposit. You can end up losing a lot more than what is actually committed to a trade. Just risk a very small part of the capital on one trade. At the same time, you have to manage risks with limits and stops.
Always be careful with CFD trading. There is never a guarantee that you are going to be successful with your trade.