Top tips for CFD traders
Every year, thousands of Australians trade CFDs in one of the fastest growing investment methods in the world. For the shrewd trader, it can be a great way to boost income or to help generate additional funds towards a more comfortable life. But as with any form of trading, there are risks and profit is not guaranteed. To minimise the risks, here are a few tips that will help you get started:
At the beginning, there is no need to start trading in large amounts. This can quickly lead to big losses and becoming demoralised. The best way to go is to start off small, with a comfortable amount of money invested. When you are starting out as a CFD trader you need room to make mistakes, without those mistakes being too costly, so while you’re learning the ropes, trade small.
Find a good CFD Broker
Finding a good CFD broker can be a useful way to start, as you can be guided by their advice and expertise and can learn a lot of useful and money-saving tips, particularly early on in your trading career. When you’re choosing a CFD broker, don’t go for the first one you find. Shop around for the most suitable broker for your needs and always check reviews.
Don’t trade on impulse
Too many beginner traders will take a quick glance at a chart, conclude on instinct or impulse that a price is not going to go any lower, and immediately move in. That is a common and avoidable mistake. Remember that with CFD trading, the price can always go lower, and by assuming that it can’t without any evidence, you are making a fundamental mistake. Never trade on impulse, no matter how confident you are. Sound reasoning is the only way to trade.
Pick your exit and entrance
When you get involved in a trade, before you jump in, make sure you know what level you are prepared to trade out and be prepared to wait for that price. This can be a test of patience, but patience is a particular virtue in CFD trading. Make the same commitment to picking your exit points, both if the trade works and if it goes against you and stick to it rigidly.
Stop losses and chasing
Both of these tips are related to the same principle, which is to know when to accept a loss and move on. Successful trading is as much about limiting losses as maximising profits. Before you trade, have a clear maximum loss you are prepared to withstand before getting out of a trade, and never, ever chase a loss with a reckless subsequent trade. If you can’t handle trades that go wrong or limited losses, you need to learn quickly, or you will not be successful.
There are many aspects to successful CFD trading, but the tips outlined above are a good starting point and should give you a solid grounding on which to build.