Contracts for difference or CFDs are a highly flexible trading instrument but need extremely skilled techniques. If you have fairly decent CFD trading abilities and a great trading system along with a money management system, there’s no doubt that you can make some significant money in CFDs trading.
1. Understanding Trading
You should first understand the differences and similarities between trading the underlying instrument directly and its CFD trading counterpart. Understanding this difference is critical since it can help you protect your money as although some of these differences can be profitable, others can bring you a loss if you are not careful enough.
2. Start Only After Understanding Fully
Open a CFD trading account and start trading only after you thoroughly understand the concept and the risks involved. Trading with real cash makes you start in a real way. The emotions involved in trading are definitely important to bring profitable results that demo account can’t replicate. A demo account should be used only to familiarize with the trading platform. However, try to make the learning curve as inexpensive as possible and here it’s helpful to trade in small sizes to start with.
3. Start with Small
You might be experienced in other margin products. But regardless of that, you should start with small CFD positions so as to avoid unpleasant surprises. Never put your full life savings into your trading account. Remember that your portfolio shouldn’t consist mainly of leveraged trading and of course, the leveraged trading should be done with the money you need for your livelihood.
4. Specialize in Selected Markets
You may be tempted to invest in several diverse markets because you may think that doing so will bring increased gains. However, this strategy actually lowers your chances of success. CFD trading needs careful analysis and exact planning. Therefore, it’s advisable to limit your trades to a specific niche of CFD market as that will enable you to gain experience while you create an appropriate system.
5. Understand Your Risk-Reward Ratios
Understand what your risk-reward ratios are and make sure they remain the same. While trading, your goal is always to get maximum returns with minimum risk. Seek short-term opportunities in particular where the possible reward goes beyond the potential risk by e.g. 3:1. Here the stop-losses and limit orders are important.
6. Understand the Basics
The basics of never trading against the trend, locking in gains by sliding stops and limiting losses with stop orders should be understood and implemented.
These tips will help you to trade with maximum success so that you’ll do the trade confidently and enjoy it.