Contract for differences (CFDs) is used by most investors to make profits online. However, it has always been a challenge to decide as to what to bet on or when exactly to place the trade. Given below are the top tips that an investor needs to keep in mind when trading CFDs online.
Start With Small Amounts of Investment
As a beginner trader, it is always best to start trading with small amounts online. This will give some space to the beginner trader that is more likely to commit mistakes and lose money in the process. When trading using margin, losses are likely to exceed initial deposit. The trading investment can therefore be small when the trader is still learning the methods of online trading of CFDs.
Do not indulge in Impulsive Trading
As a beginner, it is not wise to simply look at the price trend and trade CFDs. Actual movements can defy assumptions. This can wipe out huge amounts of the capital. It is of utmost importance to trade on the basis of specific reasons rather than impulsively or going by popular trends. Support every act that you are planning to take with a written out trading plan. Decide the entry and exit points and establish your financial goals before you start online trading of CFDs.
Decide in Advance the Level to Trade At
It is important to decide well in advance the price level at which you would like to trade. Thereafter, it is important to stay quiet till when the price reaches the pre-decided level to complete the trade. There will always be temptations that will require you to buy or sell early enough. It is always a good idea to decide on two exit points: one level when the trade goes against you and the other level when the trade goes in a direction favorable to you. The two levels should be linked using an appropriate risk-reward strategy. Preset Stop Losses
Ensure that you preset stop losses and do not attempt to move them under any circumstances. This has to done for every single trade. This move will help to protect the investor’s capital amount. Moving the stop-loss points further away when the trade moves in an unfavorable direction is equivalent to not placing a stop loss in the first place. In this context, it is important to understand that the trader has to lose in the beginning in order to gain later. It is only that the trader can make the losses as small as possible. Successful traders have been observed to have more losing trades than winning ones.
Apply Money Managing Techniques
When you are ready for online trading of CFDs, money management principles have to be in place. It is vital that you use only 10 percent of the overall capital that you have laid out for a trade. In case your CFD account is $50000, it is recommended that you use only $5000 as the initial margin for the trade. If you happen to turn the capital into an amount of $100000, then you can use $10000 as the initial margin thereafter. If your capital outlay reduces to just half the amount, say $25000, the recommended initial margin per trade is $2500.
Check Market Liquidity
It is a good idea to check market volumes before entering into trades. Liquidating any position that you may be in may be very difficult at times. If you have large volumes of a stock that is mid cap and the market direction is unfavorable, it may be difficult to liquidate the position that you have taken. In such cases, even preset stop losses do not help the trader.
During online trading of CFDs, it pays to follow the market trends rather than dodge them. However, the trader should also be in a position to find out when market trends are nearing exhaustion to take appropriate actions.
Take a Break
It is highly recommended that the trader takes a break when on a losing streak. Losing out consecutively on trades can be emotionally draining and it is a good idea to stay out of the markets for a while. All open positions should be closed and the trader can stay out and come back when feeling rejuvenated and re-energized.
Do Not Spread Your Interests Too Wide
It is not a good idea to trade in too many markets during online trading of CFDs. Trading the Japanese, US, German and UK markets simultaneously will not help you learn deeply about any of the sectors or their constituents. It is therefore good to just select a couple of sectors and study its constituents in depth.
Keep a CFD Trading Journal
Keeping a journal becomes very important in the context of losses. When you lose, record your loss. Analyse the loss and learn from it. It is not wise to repeat the same mistakes again and again and keep on losing money.
A CFD journal enables the trader to develop clarity on why he/she entered or exited trades. Maintaining and going through journal regularly is one of the most powerful forms of learning. Some of the entries that can be recorded during online trading of CFDs are: instrument traded, time of entry and exit of the trade, reason why the trade happened (fundamental, technical, etc.), did the trade result in a profit or loss, were all rules followed during trading, rating of the trade on a scale of 1 to 10, lessons learned during the trade and on entry and exit, and a chart containing the proposed entry, profit target and stop before entering the trade.
Maintain a positive Mindset
In a trading year, it does not happen that the trader makes profits in every month during online trading of CFDs. It has been observed that most traders make profits only for 2 or 3 months in a year. Therefore, when times are lean, it is of great importance to maintain a positive mindset and work towards keep the capital outlay intact. The focus has to be on daily and the trader does best with positive affirmations on a daily basis.
Finally, a trader can make any time the best trading time ever, by having a carefully laid out trading plan and following this plan diligently.
Don’t forget to trade with regulated and reputable broker for succeed in online trading, Here is recommended CFD brokers list for reference to open account.