Top Tips for Trading CFDs


Trading contracts for difference, or CFDs, is an incredibly high-risk game to play. It is perhaps one of the most intricate, misunderstood, and complex markets in existence, and it for this reason that so many novice traders are simply chewed up and spat back out.

For those who are aiming for a different outcome, it’s incredibly important to understand the markets that you’re trading: how they work, what drives them, how to read them, and how to manoeuvre them. This is not something that can be picked up in a day, a week, or even a month: it takes long hours of study, a commitment to learning, and as much real market experience as you can possibly gain.

However, that doesn’t mean that there aren’t some golden rules that can help you on your way. Here are just a few of them…

Tip One: Get the Timing Right 

One of the most frequent reasons that so many are burnt by the markets is because they make their moves either prematurely or too late.

Contracts for difference need to be given time to mature, and this means that it’s very important to develop the self-control required to play the long game. A common mistake is for traders to cash in on a trade as soon as they begin to see a gain, which prevents them from making as much profit as they could.

On the other side of the coin, when trades begin to experience a downturn, too many hold on in the hopes that their fortunes will reverse, rather than cutting their losses and minimising the damage.

Try to walk a middle line and stick to this ethos: play around with your profits, but don’t gamble with your losses.

Tip Two: Rely on Your Head, not Your Heart 

Novice traders often lack the cold calculation of the big players, and this can have a highly detrimental effect on their strategy. Using logic rather than emotion is a tip that can be applied to every area of investing, not just CFDs, yet it will make a huge difference to your performance. ‘Gut feelings’ are not to be relied upon: they’re too prone to being impacted by optimism or nerves, and as a result they can lead to some very misinformed decisions. Rely on the data and statistics instead; after all, they’re far less liable to fall under the influence of your emotions, and thus far more likely to lead you to profits.

Tip Three: Never Trade More than Two Per Cent of Your Available Capital 

Many novice traders like to think of investing as a game akin to gambling, but this analogy couldn’t be further from the truth. Gambling is a game of luck, but when it comes to trading CFDs, success is determined to a far greater extent by skill than fate. Part of this skill lies in learning to understand risk: how much to run, when, and why.  One of the best rules to apply to this is that no more than 2 per cent of your available capital should ever be risked on a single trade; after all, a 2 per cent loss is something that you can recover from, a 100 or even 50 per cent loss is not.

Stick to these top tips today and you might just be able to sit back and admire the rewards tomorrow.

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