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Top Tips for CFDs

Derivatives seem to be the ‘in thing’ recently when it comes to online trading, so many people of both sides of the trading scale, professional or amateur, are dipping into the market. CFDs are easy to trade online with companies like CMC markets, so if you are thinking of breaking into this way of trading, here are a few tips to get you started.

Monitor the liquidity of your market

Before you trade, do some research on the normal market volumes. The last thing you want is to be stuck with a position you cannot get rid of at anywhere near the price you were hoping for. If you are trading well above what the normal market size is, it will become impossible for your position to earn you any profit. This is where quite a bit of research comes into play before you actually start trading.

Have a plan

As with any investments, if you are going to trade CFDs you need to create a plan (and stick to it) before you start to trade. You may want to discuss this with a financial adviser, or you may want to go it alone, but either way you need to be prepared. The things that you should be looking ahead at are your entry point and exit points, and picking a very strong reason as to why you will change these. Try and stick to the plan as much as possible without chopping and changing. Consistency is the key for new starters, especially in a market as volatile as CFDs.

Only invest what you can lose

This sounds like a reasonable piece of advice for any stock, but CFDs can come with quite a risk, and you need to be mindful that you are not investing in anything physical.Try and make sure that your losses are smaller than you gains, and keep following this pattern. You will soon get to know why you have lost.

In the same vein, learn from your losses

Losses can be disheartening when you first start trading, but as long as you have a good analytics structure in place, you should be able to start learning from your mistakes and not repeating them. Obviously, if you keep making losses you may have to look at getting out of the market for a while. But it is your money that you have invested, so if you do lose the best thing you can gain is finding your feet for next time.

Follow trends

We all like to think of ourselves as mavericks, bucking the trends and making loads of cash while everyone else is making a loss, but this is near on impossible when you first start trading CFDs. As tempting as it may be to try and go against the grain in search of a more profitable portfolio, this could go horribly wrong, and fast. While you are getting used to the markets, stick with the trends until you gain more confidence.

Don’t put your fingers into too many pies

Meaning: don’t trade in too many markets. Especially if you are new to CFDs. If you try and spread yourself too far, you will spread yourself too thin. You might spread your risk, but you will also spread your profit. Find out a couple of solid, sustainable markets that you can learn well to begin with and start to trade on.

Don’t question profit

Even if it seems absolutely bizarre. In the world of CFD’s, profit can happen for absolutely no fathomable reason what so ever. The more you try to analyse it, the more you will waste time you could be using analyzing something else, like your losses.

Don’t be afraid to short

Some figures show that almost 80% of the CFD market is long stock. As humans, this is what feels natural for us, but don’t be afraid to short sell if you see a good opportunity. It may bring you out of your comfort zone, quite a bit, but it could also be very profitable for you. Again, this is something that you can look back on and see how well you did.