By Taivan Acer
CFD trading allows you to wager on the price movement of underlying assets without actually owning them. CFDs are traded on margin, so you only need to put down a small deposit to open a position. It makes CFD trading an attractive proposition for many traders, as you can leverage your positions to magnify potential profits.
However, CFD trading also comes with risks, so novice traders need to learn the ropes before putting in any real money.
Start with a demo account
When you first start trading CFDs, it’s good to open a demo account with a reputable broker, and it will allow you to understand how the market works without risking real money. Many brokers offer free demo accounts that come with virtual currency, so you can place trades and test out strategies without any financial risk.
Be aware of the risks
CFD trading is a risky business, and you should never trade with money you can’t afford to lose. Ensure you understand what risks are involved before opening a live account, and don’t be afraid to ask questions if something isn’t clear. Remember, your broker will help you make money, not lose it.
Use stop-loss orders
A stop-loss order is when you sell a security when it reaches a specific price, and it can help you limit your losses if the market moves against you. By setting a stop-loss order, you can rest assured that your position will be closed automatically if the market moves to counter you by a certain amount.
Use take-profit orders
A take-profit order is an order to buy or sell a security when it reaches a specific price, and it can help you lock in profits if the market moves in your favour. By setting a take-profit order, you can ensure that your position will be closed automatically if the market moves in the direction you predicted by a certain amount.
Use a risk-management strategy
When trading CFDs, it’s crucial to have a risk-management strategy to protect your capital. A common way to do this is to use a stop-loss order, and you can limit your losses if the market moves against you by setting a stop-loss order.
Don’t overtrade
Overtrading is one of the most common mistakes made by novice traders. It occurs when you make too many trades in a short period, leading to significant losses if you’re not careful. If you find yourself making too many trades, take a step back and reassess your strategy. Remember, it’s better to make a few well-timed trades than to make a lot of poorly timed ones.
Be patient
It would be best to have patience in the world of CFD trading. It can be tempting to try and make a quick profit by trading frequently, but this is often a recipe for disaster. If you want to succeed with CFD trading, you need to take a long-term view and be patient with your trades. It doesn’t mean you should never trade, but you should only do so when the conditions are right.
Have realistic expectations
It’s essential to have realistic expectations when trading CFDs. Remember, there’s no sure thing, and you will experience losses and profits. Don’t expect to make riches overnight, and don’t be discouraged if your first few trades are losers. Stick with it, and you’ll eventually start to see some success.
Stay updated with the latest news
CFD trading is constantly changing, and it’s essential to stay up to date with the latest news and developments. A better way to do this is to follow financial news channels like CNBC or Bloomberg, and it will help you understand what’s driving the markets and make better-informed trading decisions.
Use a reputable broker
When choosing a broker, it’s essential to choose one that is reputable and regulated. There are many ways to find out if a broker is reputable, but one of the best is checking with the Australian Securities and Investments Commission (ASIC). ASIC is the financial regulator in Australia, and it maintains a list of licensed brokers on its website. You can trade CFDs on this website.
