CFD trading provides an opportunity for traders to earn profits or losses by speculating on the price of a product without actually owning the physical product. CFD stands for Contract For Difference, and it’s one of the most common methods of trading on the market.
When you’re just beginning your risky CFD trading journey, you’re bound to make mistakes and take home some losses. To minimize losses, we’ve put together a list of ten tips to help you survive as a trader. Read on, practice, and get ready for more profitable market chances.
Tip #1: Only Use the Money you Can Afford to Lose
CFD trading is a high-risk financial endeavor, so there’s a high chance you can lose everything at any time. Think about what would happen if your CFD trade went sideways. Would you be broke or in deep debt? If your answer is yes, then it’s time to reduce how much you’re investing.
Try the ‘one percent rule’ where you only invest one percent of your funds in a single trade. This and more are loss-mitigating strategies available to you while CFD trading.
Tip #2: Diversify your Portfolio
One of the best things you can do for your CFD trading portfolio is to diversity it. Where you only have one open trade, if you lose money in an unprofitable market move, your entire investment portfolio goes along with it.
However, this shouldn’t be the case in CFD trading. Traders should endeavor to diversify their investment portfolio to avoid a huge financial blow that might take time to recover.
Tip #3: Start Small
Starting small when you’re still a beginner in CFD trading isn’t only because you might make losses. It’s also because you need an amount to ‘sacrifice’ to your learning phase. When those losses come, the amount should be one you can bear losing.
Even if you have $100 set aside for CFD trading, you shouldn’t use it all at once for. It’s best to split it into comfortable parts and use them to experiment with your strategies and win more profits. Once you’re comfortable with the smaller amounts, you can move on to higher ones.
Tip #4: Get Familiar with Trading Terminology
The knowledge comes in handy when conversing with other traders. If you do not know these terms, it might be hard to keep up with conversations and even CFD trading texts.
If there’s a discussion at work about CFD trading, you may want to show off your knowledge by using accurate terms to describe certain occurrences. Of course, you already know what CFD stands for, but do you know the meaning of margin, equity, lot, going long, or going short?
Tip #5: Stick to What Works for You
While CFD trading, it pays to have a strategy that works for you. Something that you understand inside and out and can explain anytime when called to. While it’s good that you know it, it’s of extreme importance that you learn to stick with it.
Except you’re testing with small amounts, venturing outside a known and vetted strategy could mean huge losses for you. Only make contrary moves to your CFD trading strategy when you’re certain it’ll work or when you’re willing to gamble on that amount. Either way, you must be ready to shoulder the consequences or cost implications of a loss.
Tip #6: Trade Strategy, not Emotions
Everyone should avoid making decisions based on emotions, including while CFD trading. As a contract for difference trader, you should make decisions based on your strategy and not because people are panicking on Twitter.
For example, suppose you opened a trade and took a market position, but you suddenly see the price starts dropping, or people around you start to panic. You shouldn’t panic and sell. Instead, take a moment and go through market news or execute your CFD trading strategy for such moments.
Tip #7: Develop Yourself
CFD Trading is one of those financial activities where you must read and expand your knowledge often to remain relevant and financially responsible. Without current information, you’d mostly be trading blindly and make terrible decisions.
Whether you’re a beginner or an expert, you should read books, blog posts or articles like this one, or news articles that talk about CFD trading itself. Also include news about the companies whose actions may affect the price of the product in which you’ve invested.
Tip #8: Keep your Main Job
If you want to survive in CFD trading as a novice, it’s important to make trading your side gig and not your main source of income. You should have your main job that brings in significantly more income while you keep trading on the side.
Keeping your job would help you make pressure-free CFD trading decisions because you have a financial base to fall back on in case of losses. If you’re not yet an expert with solid, airtight strategies, you can’t quit your job just yet to become a full-time trader.
Tip #9: Dedicate Some Time to Monitoring the Market
Want to reach your CFD trading profit goal and rank above average traders? Then you must set some time out daily to study the market daily. The market is your primary concern as a trader.
The most dedicated traders wake up at least an hour earlier and take time to watch the market, get updated on current news, and do some light reading on CFD trading. It might seem like you never have enough time, but if you cut out enough frivolities or procrastinate less, you’ll certainly find time to squeeze in some trading update sessions.
Tip #10: Study Expert Traders
News flash! You don’t have to start your trading journey from scratch. Professional traders have gone through the beginning stages of CFD trading, and some might be excited to share their knowledge and trading strategies even for free.
Find these people through a Google search, Twitter, podcasts, or CFD trading communities and study their strategies. Then follow those expert traders closely and keep learning from them as they advance. Soon enough, you’ll be able to stand on your feet and develop your original strategies.
Recap on CFD Trading Tips
- Only Use the Money you Can Afford to Lose
- Diversify your Portfolio
- Start small
- Get Familiar with Trading Terminology
- Stick to What Works for You
- Trade Strategy, not Emotions
- Develop yourself
- Keep your Main Job
- Dedicate Some Time to Monitoring the Market
- Study Expert Traders
Conclusion
With CFD trading, novice traders might easily grasp the theoretical concept of speculating on prices. In practice, you could make more losses than profits, especially as a beginner with little or no practical experience.
If you want to minimize losses and take home more profits, practice these tips we’ve outlined and watch yourself excel in CFD trading.