Investors guide: The dos and don’ts of CFD trading

Trading with Contracts of Differences or CFDs can be a tedious process for beginners to take on. But of course, that doesn’t stop them from persisting! CFD traders are known to be the most meticulous kind since you’re dealing with a pretty volatile market.

Most beginners in CFDs don’t make it long enough in the market before deciding to switch to other forms of trading. And there are 2 main reasons they do – CFD trading was just not for them or trading in general.

But to know how to follow this market’s current trends, you need to know what to do and what not to do. So to help you stay afloat in the tsunami for a market, down below are dos and don’ts when trading in CFD!

What are the ‘dos’ in CFD trading?

To make lucrative and efficient trades you need to know what to do when trading with CFDs. Consider this a guide you can follow as you start trading whether it’s commodities, metals, forex, indices, stocks and so on. Without further ado, here are the ‘dos’ in CFD trading:

Do your homework

No matter what kind of CFDs you’re trading with, it’s essential to know everything you can about it, such as the standard price point, the risks involved, the demand, etc. Plus you’re also bound to come across trading terms you might not be familiar with which can lead to confusion and affect trading decisions.

Not fully knowing what you’re getting into can be dangerous. And since trading is already pretty risky, heading into the unknown can lead to massive losses. So amp up your odds of making a hefty profit by studying the market, its terms, regulations and more.

Do choose a credible broker and trading platform

When it comes to trading assets it’s 100x more crucial to be wary of who you’re working with. These people and devices will be the ones helping you out with trades so they should be reliable at all times.

When picking out a broker or a trading platform make sure they’re (1) reliable and reputable (2) have great reviews (3) licensed and regulated (4) and offer quality services. So take your time and look for the broker or trading platform that best suits you, one that has all four characteristics.

Do keep your portfolio diversified and at the same time balanced

As a trader, it can be hard not to venture into other trades but after a while, it can be pretty overwhelming and hard to manage. Don’t take on too many trades at the same time, and don’t only focus on just one.

Try to keep your portfolio diverse and balanced at the same time. A great place to start is by taking on 2 to 3 trades at most and once you get the hang of trading in variety, you can add one or two along the way. But remember to pick a number of trades you’re sure you can handle.

What are the ‘don’ts’ in CFD trading?

In CFD trading it’s important to know what to do and of course, what not to do. Knowing the don’ts can help you prevent various risks and mistakes when trading. So here are things you should not do when trading with CFDs:

Don’t over-leverage your account

There is a kind of trading called ‘leverage trading’ and it’s when traders exchange CFDs on margin. Basically, leverage allows a trader to start with a small capital and get to open large positions. All you have to do is trade in the minimum amount to open a trade and you’re good to go.

Although it may seem like such a good idea and also a great opportunity, a chance for big gains is also a chance for big losses. So even if you’re a starting trader or a tenured, to lessen the risk of great losses, don’t over-leverage your account.

A tip you can use, once your account does start to lose money is ‘stop loss.’ This is a tool that helps you minimize losses by automatically closing a trade when it reaches the sum of money you’ve set.

Don’t disregard added fees

When trading, always consider added fees on trading platforms and with brokers. These added fees can potentially affect your overall profit and the point of making money on a trade is no longer met.

So before opening a trade or signing up with a trading platform, always consider the added fees along with their rules and regulations.

Don’t let emotions control your trade

Trading is a very technical process of making a buck, mixing in emotions along the ride can affect your strategy and profit. It’s known that when a trader suffers a loss, they tend to make impulsive decisions to try to get back the money they lost. This is where they disregard their strategies and lose even more money.

To effectively profit in CFD trading, you need to be strict and controlled when trading by knowing when to open and when to close a trade. So, before engaging, be sure that every move is being made to forward a plan, not an instinct.