Trading CFDs has the possibility of being rewarding, but can also be extremely risky. To get started you’ll want to find a reputable broker such as OBRinvest and register for an account. Once your registration is approved you’ll be able to fund your account. And then you’re ready to start trading CFDs. The next section will give you the steps to follow.
CFD Trading Steps
Trading CFDs is a form of active trading of all financial markets. Just follow these five easy steps:
- Pick your asset class
- Go long (buy) or short (sell)
- Decide how large a position
- Set stops and limits
- Monitor and close when you’re ready
CFD Trading Tips
There are a few things that can help to improve your skills when trading CFDs. One of the most obvious of these is to have a plan when you begin trading. That means knowing what markets you’ll trade, what your entry and exit signals are, and how you’ll follow the market. Below are some other trading tips that can help you in your trading decisions:
- Keep a trading journal. Keep track of all your trades here, including the entry and exit prices, and profit or losses, and the reasons why you took the trade, and why you exited the trade. Also note if you followed your trade rules and if you learned anything from the trade.
- Control your leverage. Your broker might offer you up to 400:1 leverage, but it doesn’t mean you have to use it. Start small and manage your risk by keeping your leverage in check.
- Use stop-loss orders in your trading to minimize losses. You won’t always be right and when you’re wrong a properly placed stop-loss order can help preserve your trading capital.
- Don’t neglect to demo. The demo account is one of your best tools. Use it to test any new strategy you have in mind before using real money. It can help you learn plenty about the markets and about yourself as a trader.
CFD Trading Strategies
Choosing the proper market to trade will be your first hurdle. The next will be to find an appropriate trading strategy. It should complement your own personality and trading style, otherwise you’ll always be fighting yourself.
Here are two popular CFD trading strategies you might try:
- The Breakout Strategy. With the breakout strategy your task is to use technical analysis to find key support and resistance levels for the asset. These are the breakout levels, and when price moves through them you should look to make a trade.
- The Contrarian Strategy. Timing is key with this strategy. It is based on the fact that trends eventually come to an end. Watch the chart of a trending asset and look for clues that the trend is coming to an end, such as a blowout move or volume drying up. Elliott Wave Theory is also useful in implementing this strategy.
While CFD trading does feature many benefits, there are also some risks to be aware of when trading financial markets using CFDs.
- Leverage risk – This is one of the greatest risks because leverage doesn’t only magnify profits, it also magnifies losses. That means a trade with a small profit could turn around and quickly become a huge loss. And even though the stop loss order is designed to protect against this, in rapidly moving markets price could move right past your stop loss order.
- Margin risks – When trading with leverage there is a certain margin level you must maintain. If the trade is going against you and there’s not sufficient funds in your account you may have to deposit more to increase your available margin or risk having the broker close your trade at a loss. Being aware of your exposure and margin requirements at all times is critical.
- Lack of regulation – While there are brokers who are regulated, for the most part the CFD industry is unregulated or lightly regulated. This makes it important to choose the right broker. They should be credible, reliable, and trustworthy.