The widespread trading volumes of CFDs (Contracts for Difference) indicate that these instruments are not considered to be a high-risk investment option like earlier. From large traders to the smaller local ones, everyone can deal in CFDs. The instruments offer a larger share of profits within a short period to investors even in a volatile market condition. Here’re some tips that can help first-timers in dealing with Contracts for Difference(s).
Don’t start with a large amount on day one
Always start practicing with a demo account and start with a small number of bets when you decide to start betting with real money. This is because you may even end up losing more than your initial deposit while trading using margin. Of course, you will learn the tricks within a few months, and one day you would be able to bet big. But, that day won’t be day one.
Avoid impulse trading and find a reason for your trades
Experts often observe that novice traders usually end up placing bets against the trend. They monitor the chart for the selected instrument and bet on losing CFDs believing that they won’t go down any further. Due to such impulse trading, they lose their entire capital investment. If you think the selected instrument’s downward trend is set to change, you should first find the evidence or reason for the change instead of directly betting against the trend. But of course, if you have the right reason to support your theory, you should surely bet against the market trend.
Selecting the entry and exit level for your trade
Once you zero in on the instrument that you wish to deal in, the second important task is selecting the entry and exit level for your trade. Buying and selling needs to be done in a disciplined manner and not according to the temptation or urge of buying or selling.
You need to select a level for buying the chosen instrument and purchase CFDs once they reach the desired level. Same goes when it comes to exit point. Select a standard for the exit so that you can sell the instruments after they start dropping below the chosen level.
Use your trading platform’s stop losses option wisely
The stop-loss option is significant for novice dealers as the system automatically sells CFDs when they reach the selected downward level. It helps in protecting your capital, as the cfd trading platform will sell the trade and exit to protect your investment.
You must think twice before moving the stop loss away during conditions when the trade is against you. Select the level after carefully considering the instrument’s trade history and of course, your deposit, betting capacity.
Doubling up on a losing trade
The double-up strategy involves buying more of the CFDs that are losing. This strategy can help in doubling up the profit when the instrument moves in the upward direction later. Traders opt for this method when they are sure that the downward movement of the instrument is temporary. People who do not have much experience in using this strategy should avoid “double up” and stay safe, else, your losses may double up.
Getting rid of the losing trade quickly
No matter how experienced the person is, he or she has to face a losing trade at some point or the other. The problem is that many dealers ignore losses with a hope that the business will turn into their favor after a few hours. Ignoring losing trade is something that’s not recommended by experts. Keeping your losses low is a crucial requirement when it comes to keeping the game profitable. One has to be ruthless; emotions need to be kept away when it comes to getting rid of losing trades.
Monitoring all the open positions
No doubt, every trader opens positions only after carefully considering various factors. Stop loss and profit limits make sure that he or she does not suffer losses after a certain threshold. But, setting up stops and limits for your trading does not mean there’s no need to monitor their position. A trader must remain vigil about each trade’s post after regular intervals of time.
Monitoring can help you react quickly and pull out immediately if the trade starts going against you. This ensures minimum damage.
Don’t pull-out your profits too soon
Pulling out of a profitable trade at the right time can help you make the most possible profit safely. However, during the initial stage of trading, you might find it difficult to decide when exactly to take your profit and exit the trade. Pulling out early may result in missing out on a considerable benefit. Studying the instrument’s movement recorded during the last six months carefully can help you in taking the decision.
Diversification in the investment
You can opt for CFDs from a variety of sectors like Pharma retail, mining, precious metals, auto, and so on. Spreading your bets across different sectors would help you diversify and lower your investment-related risk to a minimum. For example, if you bet only on gold CFDs, you would suffer in case of a decrease in the prices of the precious metal. But, if you go with gold, Pharma, and mining company stocks at the same time, your exposure to losses will remain minimum.
Choose the sectors that you know in and out
Diversification does not mean blindly investing in any area. Only the sectors that you have a good knowledge about can prove to be your best chance of making profits during the learning curve.
The knowledge that you gain and the mistakes that you make during trading will also help you while moving towards investing in sectors that you don’t know.
It is advisable to follow business news about the sector that you wish to know more. Learn about the instrument and the market hours that it witnesses the most trading. Check the financial reports of the companies that operate in the selected sector and the factors that influence their business.