In response to the growing number of online traders using CFDs, we have put together a list of 10 CFD trading tips for beginners to get started with trading this particular type of derivative. Some of these trading tips will stand you in good stead across the range of instruments available, but you may have a few of your own pointers to add!
Top 10 CFD Trading Tips For Beginners
- Start small and gradually increase your position size
- Use a demo account to practice
- Be aware of the risks involved
- Have a clear trading strategy
- Use stop-loss orders to limit your losses
- Stay up-to-date with market news and analysis
- diversify your portfolio
- Manage your emotions
- Stick to your plan
- Review your performance regularly
When you are first starting out trading CFDs, a few helpful tips and pointers will hopefully help point you in the right direction for success. With that, you can find our top 10 CFD trading tips explained in further detail below:
Start small and gradually increase your position size.
One of the best CFD trading tips is to keep an eye on your risk, and to keep your position sizes small, especially if you are a CFD trading beginner. Once you are successfully building your trading account balance, and you have a proven strategy, only then begin to increase your position size (but do so gradually).
Use a demo account to practice.
This is a CFD trading tip for traders of all experience levels, as it is always a good idea to use a demo account before live trading. This will allow you to get comfortable with the CFD trading platform and to test out your strategies without risking your account balance for real. For experienced traders, the usage of demo accounts is usually to test out new strategies, indicators, or even instruments that will behave differently.
Be aware of the risks involved.
Before you start trading, it is important that you are aware of the risks involved. Trading can be a risky business, and you should never risk more than you can afford to lose. On average, more than 75% of CFD traders lose money over time; if you want to be in the 25% of successful traders, you will need to keep a very tight rein on your risk, and how to mitigate this.
Have a clear trading strategy.
Another one of our top CFD trading tips is to have a clear and well-defined trading strategy. This will help you make informed decisions about when to enter and exit trades, as well as how to manage your risk. A trading strategy can be based on technical analysis, fundamental analysis, or a combination of both. Having a clearly defined CFD trading strategy is a key part of your preparation, and you know what they say… fail to prepare, prepare to fail!
Use stop-loss orders to limit your losses.
A stop-loss order is an order that you place with your broker to close out your position if it reaches a certain price level. Knowing, and using the different order types is a way to limit your losses in case the market moves against you and is one way to help manage your risk (note: this topic comes up quite a bit).
Stay up-to-date with market news and analysis.
It is important to stay up-to-date with what is happening in the markets that you are trading in. This can be done by reading financial news and conducting your own analysis. There are many different ways to do your own analysis, but one way is to look at charts and use technical analysis.
Diversify your portfolio.
Diversification is a key way to spread your risk, and it is important to diversify your portfolio across different asset classes, industries, and geographical regions. This will help to mitigate the risks associated with putting all of your eggs in one basket.
Manage your emotions.
One of the most important CFD trading tips is to manage your emotions and understand your trading psychology. When you are trading, it is important to keep a cool head and not let your emotions get the best of you. If you find that you are getting too emotional about a trade, it may be best to close out your position and take a break.
Stick to your plan.
Another one of the top CFD trading tips is to stick to your plan. Once you have developed and backtested a CFD trading strategy, it is important to stick to it; after all, what good is the best CFD trading plan in the world if you do not stick to your own rules?! Do not let your emotions get the best of you and deviate from your plan, as this will eventually only lead to losses.
Review your performance regularly.
Last but not least, one of the best CFD trading tips is to review your performance, and regularly. This will help you to see what is working and what is not working in your trading strategy based on data, and not feelings. It is also a good way to stay motivated and on track with your goals. A good way to review your performance is to keep a fully detailed trading journal.
CFD Trading Tips In Short
These are just a few of the top CFD trading tips that we feel can help you to become a better trader. Just remember, it takes time and practice to become a successful trader, so do not expect to be successful overnight! This will be a battle, so make sure you are prepared for that, and do your best to ensure you fully know the markets you trade before you consider trading for real.
Once you are ready, if you stick to your plan, manage your risk, and review your performance regularly, you will be well on your way to building your CFD trading account better than most.