Trading contracts for difference (CFDs) is a highly popular form of trading for investors worldwide. Across the financial sector, in various different markets, there are millions of CFD trades taking place each day.
With the benefits of CFD trading, it’s no wonder many traders are looking to step into the world of CFDs. Like any new process, starting to trade with CFDs can seem quite intimidating if you’re lacking in experience, or do not have any expert guidance to assist you.
Therefore, aside from getting started with your chosen CFD trading platform, we highly suggest reading these top five tips on CFD trading for beginners, to give you a great head start on your CFD trading journey.
1. Understand how CFDs work
The first thing to do as a beginner to CFD trading, is to understand fully what it is, and how it operates.
CFDs are used as an alternative form of trading to the traditional method, and includes purchasing contracts (units), as opposed to owning the asset itself. Whereas owning an asset allows you to gain profits as the value increases, but causes losses as it decreases, CFDs work on the basis of a price speculation.
You can, for instance, open a long (buy) position on an asset, meaning that as the value of the asset rises, you will gain profit – and likewise, as it decreases, you will gain losses. Or, you can open a short (sell) position, which gains you profit as the asset value decreases, and losses as it increases.
CFDs are highly versatile in the way they can be applied to several different trading markets, including stocks, commodities, forex, and many more.
2. Choose the best forex trading platform
Another essential tip as a beginner, is to get started on the best trading platform possible. The early stages of your trading journey can be crucial, since you are not only familiarising yourself with the process, but beginning to execute your very first trades.
Therefore, something that will get you off to a good start, is joining a professional, expert trading platform from the get-go. This will allow you to benefit from highly useful guidance, a range of different trade features, and one single place to manage your entire trading journey.
With the perfect platform, you will most definitely have everything you need to start building a bright trading future.
3. Take advantage of leveraged exposure
Learning how to effectively use leveraged exposure is hugely important for CFD trading beginners. Once you learn how it works, and how it can be applied to your trades, you are already more than equipped to start making some potentially profitable trades.
CFD leveraged exposure allows you to open a position on an asset with significantly less capital than the full value required. Each asset will have a leverage value that determines how much exposure you gain compared to how much your deposit (margin) is.
For example, a leverage ratio of 1:10 will allow you to pay £1,000, and trade assets worth up to £10,000. This type of exposure is great since it can allow you larger access to the market.
It is, however, important to know that leveraged exposure can result in magnified profit and losses, as both are based on the full price of the asset.
By understanding this, you can start making more strategic trades, and learning how to assess the risk and profit potential of each one.
4. Use technical indicators
Technical indicators are also essential for all CFD trading beginners, as they provide expert insight into the trends and patterns of movement in the markets.
In order to make the most successful trades, you need to ensure that you are opening the right positions on the right assets. Predicting price movements can be a tricky, uncertain business, but technical indicators can make this a lot easier.
The various calculations that each indicator offers, can provide different areas of insight into where each asset value is predicted to move next. With this in mind, you are better equipped to make more accurate trades, and lessen the chance of losses.
5. Keep an eye on external events
As with any form of trading, CFD beginners should be well aware of how external factors are affecting the assets they’re trading. In every market, price movements can be drastically changed through the impacts of certain events.
For instance, things such as political instability and wars, as well as natural disasters and global economic changes, can heavily affect the values of certain assets.
Therefore, as a CFD trader, you should stay alert for any signs of external events impacting the markets, and make use of an economic calendar, so your CFD trades can be adjusted accordingly, thus creating better accuracy and success in your trades.
With these five top tips, your CFD trading journey should now seem much less daunting, and you can confidently begin you very own experience of CFD trading.