Top Advice On CFD Contracts Trading For Beginner Traders

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CFD Trading Tips

CFD Trading Tips – Contract For Difference.

CFD trading tips are hard to come by, it is a very popular form of trading shares online, but can be risky. Here are 10 great starting CFD trading tips courtesy of regular plus500 and etoro traders Phil Barnes & Richard Moleniux.

1. Begin With Small Deposits

If you are just beginning to bet on shares using “contracts for difference” start with smaller amounts. There is plenty of time to get used to a trading platform using a demo account or trading with small amounts of money as nearly everyone makes small mistakes at first. Remember that when trading using leverage, profits and losses can be equally as big and quick. It is key to gather some experience first, as top traders are not just born, they learn from experience, usually from mistakes! So our 1st tip is to keep your trades small until you get used to trading online and gain that vital experience of how the markets work.

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2. Plan your trades! Work out before, where you wish to enter and exit a trade.

Before you trade in any instrument, you should work out in advance, the price you wish to enter a trade, and your planned exit. You will be able to work out how much you would gain before you enter the trade, so you can balance your potential profits against any potential loss. Once you have decided on this, you need to be a bit like a snooker player, be disciplined and wait for your opportunity at the price you have decided to enter. Do not give in and enter a trade too early, and the same goes for your exit plan, do not sell to early either. Decide on your plan and stick to it. As a safe guard you should also really decide on two exit points – the first being the one where the trade is going against you and one where the position of the trade has gone in your favour.

3. Do Not Trade On Impulse

A very common mistake by beginner traders is they will look at a chart, make the assumption that the price is as low as it can go and open a trade going long, because they believe the price has got to go up soon. This really is a mistake, the price can always drop lower and if you think about it, you are actually placing a bet against the current trend, with no evidence to demonstrate that the trend is changing. Always find a reason for your trades, do not act on impulse as, in the long run it could cost you a lot, if not all of your capital.

4. Ensure you use the stop losses and do not move them

Once you begin to start cfd trading, every trading position that you place should be guarded with a stop loss in place. This ensures that you exit your trades at the time you planned in the first place. You can help protect your capital, which will give you more opportunities to increase any profits you can make. A novice trader unfortunately tends to learn the hard way, but if you continue to move your stops further away after a trade goes against you, its asking for trouble and you may have well as not bothered setting a stop at the beginning.

If you are trading correctly, you should have a reason why you have set a stop loss in the beginning . Once that stop is moved, you have ignored the first tip! Discipline is probably the most important thing to learn when starting out trading. To be a successful trader, you will certainly need some discipline. It is important to remember, you want to cut your losses quickly and let those profits run. Do not make the mistake of letting your losses run.

The only time I personally would move your stop positions, from my own experience is when you are already in profit. You can move your exit points so even if the trade goes against you, it will mean you still make a profit!

5. Doubling up – Be very Careful!

When you are on to a losing trade, some traders will try and double up. This means buying or selling more of the same stock at the new lower price, whilst keeping the other position open. This strategy brings down the average entry price which means the price does not have to recover as much to recoup any loss. Although I have used this to some success, this is an extremely risky strategy which may well work a few times, but in the long run will probably result in more losses. Only ever double up if you have been made aware of a damn good reason that the trade will turn in your favour.

6. Learn when to get out of a losing trade

This really is a must. No matter how good and experienced you may be, inevitably you will experience some losing trades. The key here is to use your new found disciplin when you are faced with a losing trade. Cut your losses quickly rather than letting your losses run rapidly out of control in the your stubborn hope the trade will eventually turn in your favour. The trick to keeping your trading profitable is keeping those inevitable losses to a minimum as and when they happen. In turn, when the trade is clearly in your favour, give them chance to run. Its almost like a martial art, keep your emotions out of your trading, be disciplined and ruthless when you have a losing trade on your hands, be confident in your strategy and give it chance to become fruitful. There is nothing more satisfying when your strategy goes to plan, but do not give up when you get it wrong, even the best and most experienced traders do so often!

7. Keep a close eye on your positions

You have already probably thought long and hard about whether to give CFD trading or bet spreading a go. You are certainly not the first and will not be the last! Lots of people take a gamble and just open a position because the chart looks good, make sure you don’t fall into this trap. You are here because you are interested in learning how to be a successful trader and we are trying to give you a good head start.

Make sure you do a little research into the instrument you plan investing in. At the end of the day its your hard earned money, make sure you treat it that way! Give your opened trading positions the close attention they deserve and ensure you monitor them. Many of the online CFD brokers offer text and email alerts if you do not have the time to watch them. As mentioned earlier, always put relevant stops and limits in place for each position you open, check up on them as often as you can. If they start turning against you, it will enable you to react in time to take necessary action. As a final pointer for this topic, always ensure you have sufficient margin of funds in your account to maintain your open positions so they are not closed automatically.

8. Let your profits run

This I must say has to be one of the most difficult trading qualities to master when you start trading for the first few times. Don’t grab your profits to early! Of course you want to make the most profit out of a trade in your favour and taking it too soon could mean you miss out on a much larger profit.

9. Stick with what you know best

When you first begin trading, stick with instruments you can relate to best. If you can’t think of any, pick just a few, do a little research and get to know what you are trading in. Give yourself the best possible chance of making some money right from the very start, getting to know the instruments you trade in will increase your chance. Once you have gained some trading knowledge and opened some positions you will have again increased your chances by learning from mistakes. As you begin to gain confidence you can then move on to trade in other areas.

Reminder! – Always do as much research on new instruments that you want to trade in. Check business news online, read financial areas of a decent paper (not the daily sport) and learn the hours of trading for each individual instrument you are interested in trading. Different areas are traded at different times of the day or night. Commodities tend to be traded almost 24 hours a day with an hour or so break between 10pm and 11pm. Stocks in the UK start at 8 in the morning and close around 5pm.

If you wish to trade stocks, look at company reposrts, use financial websites such as this one to help you with your trading.

10. Diversify your portfolio to reduce risk

This is where you can lower your risk be diversifying – Commonly known as bet spreading. Bet spreading involves spreading your invested capital over different financial areas to reduce your risk. Say all of your open CFD positions are in Gold and Silver and the mining industry suffers losses, then your likely to see all your positions decline. However if you had positions in Gold, Retail and say Google stocks, you would be less exposed to losses as you have spread your bets over a variety of different equities and sectors.

Which Company should you trade with?

We have made a list of our favourite CFD brokers on our site. Please take at our top recommended brokers and take a good look at what each have to offer. Many offer free unlimited demo accounts so you can practice before you start trading for real money and some offer generous bonuses when you make your first deposit.

Here’s 3 of our favourites:

Best for Financial Bet Spreading:

Need Further Help?

We really hope you found this list of cfd trading tips useful. However there is much more to learn about trading CFDs online. If you want to start trading CFDs but unsure which company to use, why not give us a quick shout. We promise to recommend the most suitable broker for your experience and investment plans. Please contact us , and one of our team will be right with you.

We have more articles on trading in the Uk, with more cfd trading tips listed on our site. Please have a browse around our site.

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Beginners Guide to CFD Trading

Beginners Guide to CFDs Trading

If you are a forex trader who is searching for information on how to broaden your trading skills to include other financial instruments. We have compiled an all-inclusive CFDs guide that will educate anyone who is new to the market. Every currency quote commonly comes with a selling price on the left and a buy price on the right. The profit you make as a trader is the difference between the price you enter the market and the time which you exit the market.

What is a CFD?

A CFD, or contract-for-difference, is a financial instrument or asset that lets traders make gain from price fluctuations rather than from actually acquiring an asset. It’s basically an agreement between two people to pay the difference between the current price of the underlying asset and the price it will be at the time the trade is closed. The underlying asset could be stock, index, FX pair or commodity.

CFD is a derivative product which gets its pricing from the underlying asset it is tracking.

Let’s assume that you want to trade the National Australia Bank (ASX: NAB) and the present ASX stock price was 50 dollars; then the CFD would as well be quoted as 50 dollars.

The contract of difference on NAB will try to always replicate the price performance of the underlying stock.

Standard stock trading and CFD trading are related apart from the fact that you are required to deposit only a small amount of money before the trade. Other minor differences between the two include CFD finance and CFD leverage. If you are looking to trade CFD, it is essential that you properly weigh your risks before you dive into the market.

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Can traders who are starting out trade CFDs?

If you are just starting out as a trader, you may be wondering if CFD trading is suitable for you. The first thing you need to do before trading any financial product is to have a thorough knowledge of that product and how it works.

Therefore, to trade a CFD, you must know the associated risk and what your benefits are likely to be if you start to trade the asset.

Who owns the CFD or stock?

When you trade Contracts for Difference, you aren’t really the owner of the physical stock. Also, you won’t be given a contract letter the way it works when doing a standard trading of shares.

All you are doing is merely trading the price difference between the entry price and the exit price.

Key reasons people trade contracts for difference (CFDs)

There are a few reasons people go for CFDs instead of the normal share trading. These reasons have been presented below:

  1. To gain from short-term price fluctuations in the stock, index or commodity markets.
  2. To trade with the leverage offered by the CFDs. Sometimes traders have a leverage of 100 to 1 or even higher leverage when the trade involves Forex, Index and Commodity products.
  3. To serve as a hedge for your real share trading portfolio. A number of people make use of the CFDs for managing their risk instead of serving as a speculative trading opportunity.
  4. CFDs let you have access to the international stock markets from a single trading account.
  5. CFDs frequently come with a lower cost of trade commissions or cost of trade with a broker. For instance, brokers in Australia charge as small as 5 dollars to let traders access an Aussie Share CFD trade.
  6. CFDs allow you to take advantage of short selling. This implies the trader can gain from short trade opening if the position value falls. Alternatively, if your short trade price increases, it would put you in a losing situation.

7. A contract for Difference trading also gives traders access to dividends and come with no expiration time as in options trading.

Comparing CFDs with other financial instruments

Trading CFDs comes with a broad list of assets to choose from the same way it is in options and futures trading. Popular assets traded as CFDs include stocks, commodities, and indices. Because they depend on the prices of an underlying asset, trading CFDs also exposes the trader to the market risks. Trading CFDs comes with leverage advantage. However, you also need to know that at the same time it exposes you to liquidity risk and may lead to margin calls.

Trading CFD is not the same as spot trading because CFDs let you trade other financial assets in addition to currency pairs while in spot trading the trader only deals with currency pairs. The implication of this is that the factors that influence the market situation in forex trading like economic events, technical breaks and so on may have less influence when you trade CFDs.

Options trading are more closely related to CFD trading. However, one of the main differences between trading Contract for difference and option is that options trading come with expiry dates while CFDs don’t. The amount a trader loses in options trading like CFDs is merely the amount of money paid in option premium.

Who can trade Contract for Difference?

You can commonly trade CFDs as long as you are more than 18 years old, also other countries may have different age restrictions. However, you need to bear in mind that trading a leveraged product like CFDs are very risky as it can leave you with a loss that is much higher than the amount you began with. Thus, CFDs may not be a suitable instrument for everybody.

For, this reason, it is very important that you fully understand the risks involved before you start to trade this financial instrument. Also, endeavor to read the pertinent PDS and the disclaimer of the company you want to trade under their platform. With this important note out of the way, yes, there are many categories of people that can trade CFDs and these include:

  • Investors who want to hedge their existing share portfolio
  • Traders of all types both short-term traders, medium-term traders or long-term traders
  • Those who engage in intraday trading
  • Traders who use swing trading strategies

• Practically anyone who wants to take advantage of price fluctuations in the financial market whether long or short.

How to trade CFDs

In this part of the guide, we have provided a brief overview of steps involves in CFD trading:

  1. Select a financial instrument

Your first step to CFDs trading is to decide on the financial asset you want to trade like the XAU/USD or UK 100 etc. Some brokers offer traders with CFDs across a broad range of global financial markets which includes forex, indices, commodities, shares, and treasuries.

  1. Decide whether you want to go long or go short

Going long simply means buying. You buy when you feel that the price of the CFD will rise. Alternatively, you can go short or sell if you think the asset price will fall.

This step requires you to decide on the number of units you plan to trade. The value of a single CFD differs considerably. The price depends on the CFD instrument.

  1. Develop risk management plan and implement it

Choose from a collection of stop-loss orders, which needs to include guaranteed stop-loss orders (GSLOs). GSLOs functions in a similar way to the standards stop loss orders apart from the higher premium. Using the guarantee stop-loss order ensures that the broker closes you out of trades at the exact time you set irrespective of the volatility of the market or gapping. The trader would be refunded the premium if the GSLO is not implemented. But this guarantee is not with every broker, it is best to find out if your broker offers Guaranteed-stop-loss orders.

After placing your trade order, the next thing you need to do is to monitor how it is doing. Keep an eye on your open positions and remember to watch your stop orders or take-profit orders. This enables you to track your real-time profit or loss. Bear in mind that your losses in CFDs can be more than your deposit because of the high leverage. Some brokers offer Negative balance protection for these rare and unforeseen situations.

This is the last step of your CFD trading. If you don’t automatically close your trade with either stop loss or take profit or if for any reason, it is not initiated by the system, manually close your trade and exit the market when you deem necessary.

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