What are CDFs?
CFDs are derivatives that allow you to make money by trading on fluctuations in the price of an underlying asset. They can be helpful to financial tools for obtaining your trading goals in an easy and user-friendly manner. CFD trading, though, comes with risks, so we suggest it only for experienced traders. If you’re a beginner, avoid CFD trading. We’ve compiled 6 CFD trading tips for you based on where you fall on the spectrum.
CFD trading, briefly, is making a bet on whether a specific financial asset, such as a stock index, commodity or currency pair, will rise or fall in value. When you trade CFDs, you don’t own the underlying tangible assets.
What does a good CFD brokerage offer?
Like Saxo Bank UAE, the top brokerages do not possess a secret formula for success. Don’t expect the following CFD trading tips to make you a millionaire overnight. But, the following points are worth keeping in mind if you want to avoid some of the common pitfalls of CFD trading and make the most out of the experience.
Useful tips for trading
- 1. Make use of a demo account first
Before you get started, several online brokers provide a demo account to help beginners get their feet wet. A demo account is an excellent place to start if you want to test our CFD trading strategies for free before risking real money. It’s also essential to try the demo account with a quantity that you’d be genuinely prepared to trade within reality. As a result, you’ll get more realistic gains and performance. Do you have $1,000 set aside for CFD trading? Enter this as a virtual amount in your demo account and “trade” it to see whether you like the results.
- Do research
Ensure you understand what you’re doing, both in CFD trading basics and your specific trading portfolio. Don’t trade forex CFDs before knowing the difference between a USD/GBP and a GBP/USD quote. It’s advisable to pick a niche or two and excel in them instead of trying to master all asset classes or all markets.
- Consider using limit leverage
You may employ leverage, but remember, it’s rarely realistic to expect the price to transform in the desired direction once you’ve opened a position. If the price rebounds and starts moving in the “correct” direction, a modest shift (for I’m using percentage points as an example) might force you to close out your position and miss any profits. 400:1 leverage is not uncommon; however, authorities have established a 30:1 maximum limit on Europe currency pair leveraging.
- Make use of the correct trade position
Some financial firms do not allow you to adjust the leverage manually. If this is the case, consider lowering your trade position. Whatever the circumstances may be, make sure you are fully aware of your current risk exposure.
- What is your trading strategy?
Make sure you devise a plan for each trade before you execute it. Consider where you’ll close your position in the best- and worst-case scenarios ahead of time. Consider how your investment would perform if the underlying price rose by 5%. What happens if the price drops by 5%? 10%? 50%? It would be best if you considered how much you could tolerate losing on that position or how much profit you’d want to make on it.
- Consider cutting your losses
Now comes the hard part. If things go wrong, make sure you don’t chase your losses and that you stick to your original plan. When you’re emotional and want to “recapture” what you’ve lost, you’re sure to make the worst blunders. Don’t be a fool. Make a list of your rules and follow them carefully. If, for example, you decide to set your stop-loss at 10% below the purchase price, don’t deviate from the plan just because you’re a big fan of that stock and think it will do well in the future.