Since CFDs allow margin trading, profits can be relatively high – but so can the losses. While many tips can be found on the internet, this article is focused on tips that are based on responsible investing principles. This article will give you six tips every trader needs to know before executing their first trade.
1. Use a licensed reputable broker
The growth of CFD trading has resulted in the appearance of many new brokers, some more reliable than others. Finding a licensed broker, that is compliant with legal regulations and is supervised by a trusted regulatory body, is vitally important for the security of your investments.Licensed brokers are listed with a regulatory agency, and this information can be found on their websites. The control numbers should be easy to look up on the agency’s website, and you should be able to get the broker's information and history.
Take, for example the CFD online broker and trading platform capex.Com. CAPEX is licensed by CySEC (Cyprus Securities and Exchange Commission) and regulated by several other regulatory bodies, including FCA (Financial Conduct Authority) and the FSCA (Financial Sector Conduct Authority).
This way you know that the Capex.Com CFD online trading platform is subject to strict rules concerning its conduct and the safety of its clients' funds and personal details.
2. Start with a demo account
Many brokers have demo accounts available for users, so they can test the trading platform and get used to it before using their own money for trading.Whether the platform is the popular Metatrader, or a custom-based proprietary platform, it is always better to understand its features, order types and other charting and research-based tools.
Demo accounts offer this benefit, in addition to giving new users a feel for how leverage works.
3. Do your research
There are two main types of analysis techniques used by traders:- Technical analysis, which looks at historical and current market movements and trends by using charts, analysis tools and indicators.
- Fundamental analysis which looks at macroeconomic factors that impact the financial markets. Examples of fundamental analysis factors include central banks meetings, interest rate decisions and announcements (especially those of the Bank of England, the US federal Reserve and the European Central Bank), political events (like elections), trade agreements, and other events that impact the economy as a whole.
Technical indicators used in combination with fundamental analysis can help in the formation of an overall CFD trading strategy.
4. Formulate a trading strategy
Before opening any trade, make sure to have a trading strategy in place. In the case of CFDs, it is important to clarify beforehand what your risk tolerance is and make exit rules based on possible scenarios. It is also important to stick to your strategy and not allow your emotions to take over.There will always be new trading opportunities, but if you don't trade responsibly there might not be funds available to take advantage of these opportunities. Following a responsible trading strategy is one of the most important things experienced traders do in order to preserve their funds.
5. Use stop-loss and take profit orders
Stop-loss and take profit orders are instructions to automatically exit a trade at a certain price level.Not everyone can monitor their investments continuously. A stop-loss order ensures that, in the event of huge price changes, the trade will be exited to prevent further losses. The take profit order ensures you will automatically exit the trade when your profit goal is reached.
Using stop-loss and take profit orders is one of the most important strategies traders use and part of an overall strategy to maximize gains and minimize losses.
6. Use leverage wisely
The leverage ratio is the amount of a trader’s funds used in a trade compared to the amount of credit offered by the broker. Many traders use leverage as a way to amplify their trading volumes and potential gains.While profits using leverage can be bigger, so can the losses. A way to use leverage wisely is to scale down to a leverage amount that is in line with the risk you are willing to take. The use of leverage requires a responsible approach, and should only be used when the funds can be repaid.
CFD trading is considered to be relatively risky, and the use of leverage only amplifies that risk. Learning and reviewing the tips in this article periodically can serve as a reminder, and act as grounding measures for all traders in the CFD markets.
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