What is a CFD? Contract For Difference has become so popular in the past few years. Its advantages have drawn a great number of traders in the market and with enough knowledge, they can surely profit in the market. Just like any other investments that we have nowadays, there are also risks to consider. But you shouldn’t be wary – check out these golden rules in trading that will surely help you mitigate the risks and lower your losses for more productive trading.
Knowledge should be given key importance if you are really interested to make some profit in CFD trading. You should understand the basics of trading because it will lead you to more productive trading. CFD allows you to trade in multiple markets such as shares, indices, commodities, and Forex. But for newbies, it is best to study one market first. Focusing on one market will keep let you understand its concept even more.
Some traders are too focused on earning that they forgot the most important part of trading – the trading plan. As you gain more knowledge in trading, you will start to understand the importance of a trading plan. It is a roadmap that leads you to your success. Without a roadmap to follow, you will lose your way and never obtain your trading goals. Some important aspects that your trading plan should cover include the following;
- Trading strategy
- Trading goals
- Record keeping
- Time commitment
- Attitude to Risk
- Risk management strategies
- Market to trade
- Available Capital
Inside a trading strategy is your methodology of how you should enter or exit a trade, the trading tools that you will use, and the indicators that will help you predict the movement of the market. There are also risk management tools to help you mitigate the risks. The trading strategy that you’ll have will be based on the time that you will be spending in the market. There are different trading strategies to choose from – swing trading, scalping, and day trading.
After creating a formidable trading strategy, always remember to stick to it, just like with your trading plan. This will serve as your ultimate guide in reaching your goals.
To manage your risks, you have to attach stops and limits to your opened position. This method is common and quite straightforward. You have to define a specific exit parameter into the stop-loss order that once triggered will automatically close the position to protect your trading capital. This stop-loss order still depends on your call. Therefore, you have to ask yourself and know the amount of money that you are willing to lose when setting up these risk management tools.
In trading, you won’t be able to navigate well if you don’t know the market. As much as possible, get to know what is a CFD and the trading platform that you will be using through the help of a demo account. This is also the safest place to practice your trades.