Trading cfd strategies

However, there is no need to lose hope. Today, there is so much information regarding CFD trading, even a beginner could make some real cash out of it.

To save you from all those common mistakes you can make as a beginner, I decided to write this guide and tell you about all the trading tips and strategies you need to know about. If all of this is very new to you, the first thing you should probably do is try to understand how this entire industry works. Once you get a good understanding of how it works, you can become a part of it. Otherwise, without any knowledge, you will just end up spending your money aimlessly and you will be left with no capital.

5 CFD trading tips & strategies every beginner should know – 2020 guide

Stock trading has been around for hundreds of years, but it has always been the market for those that are more financially stronger. However, a lot of things have changed in the 21 st century, making stock buying & much more accessible to a “regular” citizen. In other words, you do not need to have millions of dollars in your bank account to make a transaction in this industry. With easy access to the internet and contracts for difference or CFD, it is not easier than ever to trade.

Nevertheless, just because it is accessible to you, me and everyone else do not make it simple or easy. You can buy and sell with a much smaller amount of money today, but it is still difficult to make a profit out of this as much as it was a hundred years ago.

However, there is no need to lose hope. Today, there is so much information regarding CFD trading, even a beginner could make some real cash out of it. To save you from all those common mistakes you can make as a beginner, I decided to write this guide and tell you about all the trading tips and strategies you need to know about.

Learn more about CFD trading

If all of this is very new to you, the first thing you should probably do is try to understand how this entire industry works. Once you get a good understanding of how it works, you can become a part of it. Otherwise, without any knowledge, you will just end up spending your money aimlessly and you will be left with no capital.

Fortunately, learning about CFD is very easy because there is tons of information regarding the subject on the internet. There are so many different sources you can learn from.

Once you are done doing research, you can start exploring different tips and strategies as a beginner.

Find a good strategy

If you want to be a traitor, you should never rely on luck. This might be the case when you do not have to listen to your gut. Instead, you should use logic to be careful how you invest your capital.

Stock buying or selling can be similar to gambling because there is a risk for you to lose all of your money. That is why it is very important to have a certain strategy and to invest your money as best as you can.

Before you make any kind of move, it is vital that you do some research first on the investment that you want to make.

To truly be successful as a traitor, you will need to find a good strategy. Naturally, you can also build your own strategy, but leave that to the more experienced players in the game. Right now, you are still just a beginner and you should treat yourself as such. Find a strategy that you believe will help you make a profit.

Once you find a strategy, make sure you properly learned and then stick to it no matter what happens. It is very important to stay true to your strategy because there will be moments when you will want to panic sell all your assets. The market is volatile and prices can easily go down and up. Whenever you see a significant price drop, do not panic and stick with your plan.

Pick the right stockbroker

The platform where you will be buying and trading assets is another very important factor that you must consider. Right now, there are probably hundreds of different platforms and applications that allow you to trade cfds.

However, not every platform can be good for you. There are some out there that might try to scam you out of your money or force high fees on you. As a beginner, you should probably look for a platform that has very low fees.

Obviously, it can be a bit difficult to find the perfect trading platform, but if you do a little research and check this or other similar websites, you might be able to find reliable CFD brokers in your area.

Always be ready to take action

As I already mentioned previously, the stock market can be very volatile sometimes and you always need to be ready for those spikes or drops in the prices. You cannot exactly know when they will happen, but you need to be ready.

That is why I believe it is best that you find a CFD trading website that has proper mobile device support or at least has an application for both android and ios.

With direct access to the market through your phone, you can always be ready to take action whenever it is needed. Obviously, I am not telling you to be paranoid and check how your account is doing every 15 minutes, but you should check it at least once a day. You should do that to ensure that everything is stable or whether you need to make some changes with the assets you already have.

Never go all in

There will be situations when you will feel tempted to put all of your money into a single stock or into a single company. No matter how lucrative it seems at that moment, I suggest that you never go all in. The reward that you might get out of that might seem quite good, but it is simply not worth it. With this kind of move, you could lose your entire capital, leaving you with nothing to trade with in the future. That is not how all those experienced players on the market have made their millions.

With patience, focus, and dedication, you can get very far with CFD trading as a beginner. Play it smart, always stick to your strategy, and be very careful with your capital.

There are probably hundreds of other tips or strategies I can share with you regarding this topic, but right now, I think these tips I shared are more than enough. You are still a beginner and you should not overwhelm yourself with too much information. I hope that this guide will be helpful to you.

CFD trading strategies – effective trading

Having reached a stage where you’re comfortable with what cfds are, how they work and the various different options that present themselves to you as a trader, it’s time to start looking further into the nitty-gritty that is trading strategy. Ask any accomplished trader whether or not he employs a consistent, repeatable strategy, and more often than not you’ll find the answer in the affirmative. Devising a strategy is a central component of successful, sustainable investment – anything else is either highly labour and time intensive, or bordering on guesswork.

Why do you need strategies to trade cfds successfully?

A strategy for investing is like a blueprint for building a house – without those instructions in place, it is hard to ensure you’re consistently hitting the mark, and that the pieces of the puzzle will readily fit together when the time comes. While strategies don’t have to be overly complicated, they are procedures best developed through a combination of knowledge and trading theory, and personal (and often bitter) trading experience.

In the forthcoming segment, we’ve attempted to outline the foundations of common CFD trading strategies for you, collating the collective knowledge of experienced traders to reflect a true and accurate position of some of the most widely used trading strategies and techniques in the CFD market. While it’s up to you which (if any) you choose to implement, it is nevertheless important to bear in mind the value of experience, and to take advantage of the mistakes others have made before you to prevent losing your capital unnecessarily.

Learn from experience

Likewise, there is really no substitute for experience when it comes to trading other than the knowledge of those that have gone before you, and there are invaluable lessons to be learned from devoting time and energy to reading up on trading do’s and don’ts. Like most things in life, there are certain fundamental trading lessons that it pays to learn in the theoretical sphere before you launch unsuspectingly into the markets to learn the hard way.

While there are no hard and fast formulae to which you must adhere when trading cfds, there are certain fundamental trains of thought that have served traders well over the years, and it pays dividends to familiarise yourself with these strategies – if not for personal profit, to give you an insight into the possible mindsets of other traders. So without further ado, here are a few of those key trading strategies, tips and techniques that will stand you in good stead in your future trading efforts.

Why is it important?

One might think why it’s so important to have a trading strategy, think again. One has to follow the plan and stick to it. No matter if the markets go south or north, you have to be prepared for it and that’s where the strategy comes into play as you can weather the storm without paying much attention. You know your goal and you stick to it.

Always remember, it’s your money on the line and you have to stay disciplined and dedicated, make sure you’re in control and stick to your own strategy; otherwise, it’s pointless. Discipline and experience are the vital ingredients which will turn your losing trades into the winning ones.

CFD trading strategies

Are you new to the world of CFD trading? Struggling to get started? If you answered yes to either of those questions, this article was written with you in mind and should help you find your footing.

One of the biggest challenges new traders face is in developing a strategy that will help them make profitable trades in a reliable, consistent manner. With that in mind, here are two simple, but surprisingly effective strategies you can begin using, starting today! If that sounds good to you, let’s take a closer look:

Trade the headlines

Here’s a two-question quiz for you: when the exxon valdez oil spill happened and was reported on the news, what do you think happened to exxon’s stock price?

When the BP horizon off-shore oil rig exploded and started dumping tens of thousands of gallons of oil into the gulf of mexico, what do you think happened to the company’s stock price?

If you guessed “it went down,” on both of the questions above, you’d be right! Even better, the price didn’t drop instantly. There’s a natural, unavoidable lag between breaking news and the market’s response and if you’re paying attention, you can dive into that gap and make some money.

Don’t think that this strategy applies only to oil companies, and don’t make the mistake of believing this is simply “disaster investing.” it isn’t. If tesla announces tomorrow that it has figured out a way to double the battery life of the batteries it uses in its cars and in the powerwalls it sells for home use, you can bet that the company’s stock price will soar.

In a similar vein, if a company that makes 3D printers announces the creation of a “hydra extruder” that will allow you to seamlessly print with up to six different materials, or if apple announces an exciting new product, those are all things that will make the company’s stock price increase.

It gets better, because there’s also a lag between the release of a company’s quarterly earnings reports and the market’s reaction to those reports.

All that to say, you don’t have to be a rocket scientist to read the tea leaves and have a pretty good idea about which direction the price of a given asset is going to move, you just have to be paying attention and be set up to take advantage of those signals when you see them.

There’s a reason that most brokerage platforms feature live, streaming news, after all, and the examples above explain why.

So – start trading the headlines. Have your account all set up and ready, then watch a lot of news. Read a lot of industry reports. Download a detailed financial calendar and be ready to pounce when you see that such-and-so company you’re interested in will be releasing this or that report.
Then act on what you read. Be one of the first movers and reap the profits for doing so! With speed and practice, you can use this simple strategy go make consistent profits.

Pairs trading

This strategy requires a bit more research. Pick an industry you’re interested in. Pick two companies in that industry. Look at their price histories.

Since they’re in the same industry, generally speaking, you should see that their prices move more or less in tandem. Both go up, then both go down as the conditions in the market change. In other words, if it’s a “bad year for auto makers” then it’s a bad year for all of them. They all tend to respond the same way to macroeconomic changes. It doesn’t matter what the industry is, for the most part, that’s true. It’s just how the market works.

So, watch the market and watch your selected pair of companies.

If you notice that their price action begins to diverge, that’s a signal that it’s time to take action because you know, having studied the long term trends, that these companies tend to move more or less in tandem, which means that before much longer, that gap in price movement is going to start closing again, opening a short position in one, and a long position in the other, depending on which company seems to be the “weak link” driving the divergent behavior.

The reality is that there are all sorts of trading strategies you can use or devise, and as you gain more experience, you’ll no doubt come up with your own. But if you’re’ looking for a simple way to get started, thousands of investors have used the two strategies mentioned above to great effect, and you can too!

5 tips for simple CFD trading strategies

If you are interested in CFD trading and wanting to learn how to make money from trades, here are a few tips and tricks to help.

Trading any asset – whether cryptocurrency, stocks or forex – is a fantastic way to raise your capital and padding your income, especially now as things are financially uncertain across the world. Contract for difference (CFD) trading has become a popular way of buying assets through a broker rather than purchasing them directly.

While CFD trading might have a sense of security that direct trading lacks, there is still complexity in how to trade. To make the most money for your time, it’s a good idea to gain a solid foundation of understanding of the strategies of CFD trading. If you have the best methods in place, you are more likely to see a good return on your trading investment.

If you’re just starting out, or are wanting to add to your CFD strategies, here are a few tips and tricks to help:

1. Aim for consistency: find and use a strategy you can maintain

Trades which happen and make a person millions on a “gut feeling” are rare and the exception. If that was the case more often, trading would be based on far more luck and the industry would be a lot more like gambling than anything else. Instead, the rule of thumb is to be a lot more strategic and to figure out what works and stick to it. This goes hand in hand with doing consistent research on your trades. Keep an eye on the market and seek to improve your trades every time you invest.

2. Keep a level head and don’t readjust too often

With your CFD, you want to stick to the plan you set out initially as much as possible and not panic sell or buy based on volatility. But there are times when shifting your strategy is necessary. Trading is all about keeping level-headed and not making emotional decisions based on volatile swings or market sentiment. Rather than sticking to your trades out of stubbornness and buying over-enthusiastically, keep your CFD levels under control and base your decisions on facts not feeling. Always remember: what comes up might also come down, and you don’t want a falling CFD to take your gains and capital with it.

3. Look after your initial capital

As a beginner, your goal shouldn’t be to make more money, not at first. Rather, you should aim to not lose the money you have. Instead of learning how to gain, learn how to avoid losing your money and then when you’re more familiar with the market, you can aim to increase. A good defensive trading strategy is a fantastic way to learn the ropes without risking your capital. When you feel comfortable, you can up the ante and take a more risky approach.

4. Don’t be shy to ask for advice

Everyone started as a beginner and learnt some lessons the hard way. Aim to learn from other’s mistakes and ask for help if you need it. There are platforms available which have a wealth of CFD trading resources. The more you engage with additional resources while making modest trades, the more you can learn both theoretically and practically.

5. Be cautious with your money

The trading industry has countless experienced traders who are able to spot a trade based on another person’s mistake. To mitigate mistakes, learn to be patient with your trades and build your experience in trading before making any bold decisions.

As with all trading, make sure you are aware that any investments you make are not guaranteed, and there is risk involved with CFD trading. Bear the above points in mind and make any mistakes earlier on your trading career rather. That way, the lessons will come at an affordable price with minimal risk.

Posted: nov 19, 2020 author: becky categories: trading guides

CFD trading strategies – effective trading

Why do you need strategies to trade cfds successfully?

Learn from experience

Why is it important?

Always remember, it’s your money on the line and you have to stay disciplined and dedicated, make sure you’re in control and stick to your own strategy; otherwise, it’s pointless. Discipline and experience are the vital ingredients which will turn your losing trades into the winning ones.

5 CFD trading tips & strategies every beginner should know – 2020 guide

Learn more about CFD trading

Fortunately, learning about CFD is very easy because there is tons of information regarding the subject on the internet. There are so many different sources you can learn from.

Once you are done doing research, you can start exploring different tips and strategies as a beginner.

Find a good strategy

If you want to be a traitor, you should never rely on luck. This might be the case when you do not have to listen to your gut. Instead, you should use logic to be careful how you invest your capital.

Before you make any kind of move, it is vital that you do some research first on the investment that you want to make.

Pick the right stockbroker

Always be ready to take action

That is why I believe it is best that you find a CFD trading website that has proper mobile device support or at least has an application for both android and ios.

Never go all in

With patience, focus, and dedication, you can get very far with CFD trading as a beginner. Play it smart, always stick to your strategy, and be very careful with your capital.

CFD trading strategies for successful trading

Cfds, or contracts for difference, are derivative off-exchange instruments which allow traders to speculate on longer term price movements. Traded directly with the broker rather than the market, cfds are contracts to buy or sell an underlying instrument at some future point, at a price stipulated today. Like spread betting, cfds allow traders to adopt highly leveraged positions, and can provide traders with an alternative instrument on which to base their market and index projects. There are numerous trading strategies applicable to trading cfds.

The importance of CFD trading strategies is hard to overstate, and without a coherent and defined plan of action it is extremely difficult to get to a stage where your cfds consistently deliver a profit. Trading anything without a strategy is like playing golf blindfolded – while you might hit the ball once or twice, it’s far more feasible to open your eyes and take account of the wider picture with a strategic approach to your CFD trading.

Choosing which CFD trading strategies to employ for best effect is something of a balancing act, and requires you to factor in a number of considerations when making that decision, including your appetite for risk, your trading objectives, the impact of leverage on your positions and your available capital. Nevertheless, finding a trading strategy that works for you is the first step towards more consistent CFD trading, and could set you on your way to building a long-term, profitable trading career.

Two types of strategies

Short term

CFD trading strategies come in a variety of different guises. Some are based on going long, while others are based on selling weak markets short. Others focus on the turning point of markets, while others trade within the boundaries of previous price performance. But aside from the specifics of the nature of an individual strategy will be an underlying concept – it will either focus on long term investment strategy, or a shorter term investment strategy.

While both are equally popular in trading as a whole, cfds tend to fall more often (although not exclusively) into the short-term camp, for the fundamental reason that financing costs can make long-term leverage a problem. But how do short term trading strategies help traders to generate sufficient return to make it worth their efforts, and how do they compare to long term trading strategies on the whole?

Short term trading strategies tend to look at cfds in terms of hours, rather than days, for the simple reasons of financing costs, and the mechanism through which these costs are passed on to traders. Financing costs only become an issue when positions are held overnight, and in allowing a position to roll over the trader is instantly eating into his margin on the day by incurring extra charges. Depending on the nature of the present transaction, this could be sufficient to render a position unprofitable, and you may find yourself in a financially better situation by closing out and taking your profit just before the end of the trading day.

But short term trading strategies also bring other benefits to the table. With a short term position, there’s only so much movement the market can make. While cfds are perhaps best applied in volatile markets, it is a rare occurrence for markets to collapse totally over the course of one day. That’s not to say it doesn’t happen, but you are far less likely to feel the heat of a total market collapse in your CFD positions if they are held over a maximum of one day, rather than, say, a month. By keeping your exposure to different markets brief, short term trading strategies allow you to avoid the dangers of over-exposure.

Similarly, short term trading strategies lend themselves to contracts for difference more naturally because of the high leverage component cfds bring to the table. Cfds are the ideal instrument for a quick in and out, allowing maximum gains to be had in the shortest period of time.

However, trading short term does have its drawbacks, and one of the main concerns many CFD traders express with shorter term trading strategies is that fact that commissions and transaction fees are so significant. It might not seem to be the case when you’re spending a couple of percentage points here and there, but if you were to sit down and accumulate the sheer amount of money short term trading strategies shovel into the pockets of brokers, you would be amazed. With longer term trading strategies, this isn’t so much of a concern, but of course the financing costs start to come into play the longer you hold a position.

Not all trading strategies for cfds have a short-term outlook, despite the vast majority relying on traders opening and trading positions over a short time frame. With cfds, time is most definitely money, and in combating financing costs short-term strategies already have one-up on their longer-term counterparts. However, it’s worth remembering that just because conventional wisdom says short term is the way to go doesn’t necessarily make it any easier or less risky an approach over time than trading on a long-term outlook.

Long term

Conventional wisdom in CFD trading suggests that short term transacting is the best policy, holding open positions for a day or two at the most to counteract the bite of financing costs. Long term trading strategies have long been regarded as the preserve of less highly leveraged trading styles, and tend to go hand in hand with less volatile markets. But is that necessarily a rule to which you must adhere as a CFD trader?

Some CFD trading strategies are in fact designed for those with a longer-term view, and while financing costs are no-doubt an issue that must be borne in mind at all times when dealing with margined investments, they don’t necessarily cancel out the profit potential from a given CFD position.

Take the example of a property developer investing in an office complex. Chances are, the developer will be funded by a bank in order to make the deal happen, and the costs of providing this finance (itself a form of leverage) will accrue over the lifetime of the investment. The developer will of course be required to account for the interest costs and factor in repayments to his financial calculations, but this doesn’t necessarily mean it’s impossible to generate a profit from the transaction. The same is true with holding contracts for difference over the long term.

People don’t tend to invest in cfds, preferring instead to trade them on a quick, short-term basis. But longer-term investment actually have their advantages. One of these core advantages is the ability to ride larger price movements – a door that is abruptly shut to those engaging in shorter term strategies.

Price movements over the course of one day are usually restricted, and it is a rare occurrence the prices will move drastically – even in volatile markets. Contrast that with the potential movements in price that can take place over the course of a couple of months, where serious price rises can make savvy traders serious money – interest costs and all.

Furthermore, the cost of transacting with longer term CFD trading strategies is significantly lower than it is with day trading and other shorter-term outlooks. Because day traders engage in multiple short-lifespan trades, they incur the costs of broker fees and commissions on a much more frequent basis than their longer-term counterparts, and this is a cost that can have a serious impact on your trading bottom line. While it is true to say that longer-term positions generally expose your trading account to greater risk, this can be tempered with lower per-transaction costs, and provided you do your homework, can be an equally, if not more profitable investment approach than going the short term route.

Long term trading strategies are far from the norm in CFD trading, but that’s not to say they are in complete isolation either. Traders who employ long term CFD trading strategies understand that they must bear the brunt of the additional costs, but by striving to stake out for much larger profits, it is hoped that the rising value of open CFD positions will more than cancel out financing costs to deliver a healthy profit over time.

Support and resistance

When trading cfds off the back of technical data, there are few more important terms of which you must be familiar than support and resistance. Support and resistance levels provide traders with clear and defined parameters for trading, and enable decisions to be made over both short and long term outlooks to drive a profit. No matter whether you’re looking at cfds on company shares or cfds on commodities, the interplay of support and resistance makes for a more naturally obvious trading system, and helps define the outer limits of possible CFD transactions.

Support is defined as the bottom end of a market for a particular CFD, that is the point at which downwards momentum halts and buyers re-enter the market in recognition of the under pricing of the CFD. Resistance, in contrast, is the top end of the pricing spectrum, and the point at which traders close out their positions in order to realise their profit – in other words, the point of resistance is the notional ceiling through which the CFD price does not penetrate.

Support and resistance work as trading indicators because markets behave in a relatively cyclical fashion. Take, for example, oil prices. The market for oil is driven by supply and demand, and all things being equal, prices will naturally fluctuate between set levels, revolving around the true value which tends to lie somewhere in the middle. As those that require oil for manufacturing start to buy it, demand increases and forces prices upwards until they reach an unsustainable level, at which point prices fall until they are too cheap, which encourages buyers to re-enter the market, and so the cycle continues.

With investors and price speculators jumping in on the action, and external factors prompting decisions to buy and sell, this serves to make the market a little more volatile and a little less predictable in practice, but nevertheless at a conceptual level, there is both a support and resistance level at which prices become unsustainable at both ends of the spectrum.

Any strategy relying on trading resistance and/or support requires the ability to identify support and resistance levels. One of the key ways in which traders reach conclusions about these thresholds is through graphical analysis, and through closely monitoring the behaviour of prices as the markets move through their cycles.

A one-time low isn’t enough to justify trading that as the market support – a support is a consistent price point, or more accurately prize zone through which the price of the relevant CFD stubbornly does not move, and it is crucial to check and double check these levels as the market moves through its cycle to ensure you’re making a sensible investment decision. Once these levels have been firmly established, its time to sit out and wait the next potential turning point, before riding the wave of the cycle as market trends begin to reverse.

Trading off the back of support and resistance measures allows traders to capitalise on the cyclical nature of the markets, and to take advantage of under and over pricing in specific CFD classes. With the aid of graphical analysis, and a consistent monitoring of CFD prices and external price triggers, trading through support and resistance boundaries can be an effective way to improve your success and consistency when trading contracts for difference.

10 golden rules for CFD trading

Cfds have gained popularity in recent years due to the benefits that they offer traders. But CFD trading has certain risks too. We’ve compiled 10 golden rules of CFD trading that can help you to understand the product better.

Publication date : 2018-11-01T13:39:00+0000

1. Develop your knowledge of cfds

Before you start trading it is vital that you understand what cfds are and how they work.

CFD stands for contracts for difference – a derivative product that enables you to speculate on a range of global markets such as forex, commodities, indices and shares, without having to own the underlying asset. This means that you can take a position on rising and falling markets – you would go short (sell) if you predict the price will fall or go long (buy) if you predict the price will rise.

Cfds are a leveraged product, which means that you can gain access to a position by putting down a small deposit, known as a margin. Your profit and loss are calculated on the full size of your position – so it’s important to remember that while leverage can magnify profits, it can also lead to magnified losses, including losses that exceed deposits for individual positions.

2. Build a trading plan

Continuing to develop knowledge is an essential component of successful trading, which includes knowledge about yourself and your trading goals.

A trading plan provides you with a clear path on how, what, when and why you should trade. It will help to shape your behaviour and avoid the pitfall of making decisions based on emotions. These are the most important aspects that should be covered in your trading plan:

Motivation

Time commitment

Trading goals

Attitude to risk

Available capital

Risk management strategies

Markets to trade

Trading strategy

Record keeping

Each trading plan should be unique to the individual. Although your plan can be based on someone else’s, you should always adapt it to your own aims and risk appetite.

3. Stick to your CFD trading strategy

A trading strategy outlines the style of trading you intend to use, including a methodology for entering and exiting trades, as well as the tools and indicators that you might use. Your strategy will depend on how much time you want to spend monitoring the markets. There are a range of different trading styles that you can use depending on which strategy appeals to you – including day trading, swing trading and scalping.

Discover these trading strategies and learn how to become a trader

It is absolutely crucial to stick to your CFD trading strategy, as trading based on the parameters you have set will minimise the impulse to trade out of fear or greed. It is equally important to know when your trading strategy is not working. This can be achieved by keeping a record of your winning and losing trades, and back-testing your trading strategy.

4. Analyse the markets to time your trades

When you are building your CFD trading strategy, you need to decide what type of analysis you will use to identify entry and exit points in the market. There are two types of analysis that traders use: technical and fundamental. Fundamental analysis focuses on external events and influences such as macroeconomic data, company announcements and breaking news. While technical analysis attempts to predict the future direction of a market by analysing historical price charts.

Although you can use each form of analysis individually, it is common to use a combination of the two.

5. Make sure you understand your total position size

Your position size is the total market exposure of your trade. When opening a new position, you should take into consideration your available capital and the amount of risk you are willing to take.

Every CFD trader should outline exactly how much capital they are willing to risk on each trade in their trading plan – and remember this is how much money you can stand to lose.

Remember, CFD trading is leveraged, so your total position size will always be significantly more than your initial deposit, and you could lose more than you commit to a single trade. As a result, a common approach is to only risk a small percentage of your capital on a single trade, and to manage your risk with stops and limits.

6. Manage your risk with stops and limits

A common method of managing risk is attaching stops and limits to a position. These pre-define the exit levels for your trade and can help protect your capital. A stop-loss order is an instruction to your broker to close your trade at a price that is less favourable than the current market price. You need to ask yourself: ‘how much money am I prepared to lose before I close my trade?’ and set your stop-loss accordingly.

You can also place a limit close order, which closes at a level that is more favourable than the current market price. This closes your trade after you have achieved a certain amount of profit, with the intention of protecting your capital from adverse market movements.

7. Start small and diversify your trading over time

As you embark on your CFD trading journey, start small. There are thousands of markets to choose from, so it is important to focus on markets that you are already familiar with or have an interest in. Once you have more confidence in your strategy you can begin to diversify your exposure across a range of asset classes.

Cfds are a great tool for expanding your trading horizons, as they enable you to gain access to declining markets as well as rising ones.

Ready to start trading? Open an account with IG.

8. Monitor your open positions

Even though you may have stops and limits in place, it is important to frequently review your positions. This will help you to identify any issues or opportunities quickly and prompt you to act when necessary.

It is also important to make sure that you have sufficient capital in your account to cover the total maintenance margin required to keep your position open. If your account falls below the minimum level of funds, you will be placed on margin call – which could result in your position being closed if you do not top up your account.

A great way of monitoring your positions on the go is to download a trading app . With IG, you can access a range of trading apps specifically designed for mobile and tablet devices, and get price alerts sent directly to you whenever there is a significant market movement.

9. Never add to a losing trade

A successful CFD trader will know that no matter how experienced you may be, you will always experience losses. What makes a trader successful is how they respond to these losses. The rule here is to remain focused and in alignment with your trading strategy by not acting on greed. You will learn over time when it is time to cut your losses, and get out of a losing trade.

10. Practise trading with a demo account

If you don’t feel ready to trade on live markets, a great way of testing your trading plan is to open a demo account and practise executing trades with virtual funds. A demo account gives you the opportunity to experience live markets in a risk-free environment, at no cost.

During your time exploring the demo account, make sure that you gain an understanding of the financial terms used and the markets that you have access to. If there is anything you do not understand, you can use trading courses – like those offered through IG academy – to build a stronger foundation of knowledge on cfds.

Then, once you’ve built up your confidence, you can open a live account and put your knowledge into action.

Using the golden rules of CFD trading

While there are risks associated with trading cfds, committing time to building your knowledge can give you a significant advantage and reduce your risk.

As we have discovered, finding your perfect trading strategy is an ongoing process that should be tailor made to fit your personality and trading goals. There is no end to your development, as even the most experienced traders can learn more. But if you follow these golden rules and stick to your CFD trading strategy, you will be well on you way to becoming a successful CFD trader.

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Spread bets and cfds are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and cfds with this provider. You should consider whether you understand how spread bets and cfds work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.

The value of shares, etfs and etcs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.

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CFD trading strategy

To come out on top in the fast-moving world of contracts for difference you need a trading strategy

If cfds are so good, why doesn’t everyone trade them?

The biggest obstacle is lack of product knowledge and investor understanding. But that’s changing as investors become increasingly market savvy – and that is why CFD brokers are witnessing a huge migration of investors from traditional share buying.

Sophisticated investors are also turning to cfds for their risk management and tax planning. A short CFD position can remove or reduce portfolio market exposure risk without the loss of voting rights by hedging an existing long share position. Tax planners can trade against existing profitable holdings, selling cfds to lock in a profit on an equity holding without incurring a tax liability.

As with any form of investment, there is a risk attached and it is possible to lose as well as win. That is where a trading strategy comes into play.

After 17 years trading financial markets I have learned that the one thing all consistently winning traders have in common is a strategy. They all stick to a strict set of rules, taking the emotion out of their decision-making.

Traders should stack the odds in their favour before making a trade. That means spending some time analysing their trading style and mindset, as well as the markets. Some CFD firms offer investors a free suite of tools and seminars designed to assist help. Only once these crucial elements are conquered is an investor ready to trade. Whether using traditional shares, spread bets or cfds, they will stand a much better chance of staying profitable.

CFD trading strategy

So how do active CFD traders make money? Unsurprisingly the majority continue to trade as they did while investing in shares through their stockbroker. The majority of trades are indisputably ‘buys’.

But an increasing number are using cfds to their true advantage, selling shares as freely as they previously bought. In this group are a growing band of traders who have discovered one of the most successful methods of CFD dealing: pairs trading.

Pairs trading is a tried-and-trusted method of low-risk and highprobability gains – an arbitrage technique balancing a long trade versus a short trade. Traders buy one stock, future or other financial instrument and simultaneously sell another. By anticipating a divergence or convergence in price between two instruments, pairs trading offers traders the chance to adjust their risk tolerance to the trade.

A risk-averse pairs trade would be a same-sector pair, perhaps buying vodafone (VOD) while selling mmo2 (OOM). The expectation in this example is that the price of vodafone will rise relative to the price of mmo2. By pairs trading, a trader reduces exposure to large market moves, in this case a big move in the FTSE 100. In a crash situation, both shares could be expected to fall by a similar percentage, thus exposing a CFD trader to just the convergence or divergence between the two stocks.

A trader with higher risk-tolerance levels would make a more aggressive pairs trade, perhaps trading shares from different sectors, different market caps or even different exchanges.

A recent example of an aggressive pairs trade is the FTSE100 versus dow jones index pair. Historically, these markets move in broad unison, swinging around a point of balance. But several times a year the diversity of factors that individually affect each index stretches and skews this perceived equilibrium point.

When this happens, the blue-chip indices start a divergence process that can last for weeks at a time. This is where aggressive pairs traders make huge gains.

Looking at the chart shows the recent example of this divergence. Back in september, we saw the first sign that divergence was occurring and that an arbitrage pairs trade was on the cards.

Note that the dow jones index has plummeted by 170 points whereas the UK’s market has escaped relatively unscathed.

A collision of events simultaneously sparked a rift between major stock markets. But why? Following the summer’s rapid rise, both markets were drastically overbought and were both ready for retracement downwards. But unlike the dow, the FTSE made very little downward retracement.

Pairs traders took their cue to sell the dow and buy the FTSE as a CFD pairs trade, expecting the trend to continue. Marked in blue, the chart plots the difference in value between the dow and the FTSE, or in other words dow minus FTSE. See how the bear channel knocked off more than 600 points between the two indices: pairs traders made big profits from this aggressive trade.

Having said that, traders had to be quick on their feet. A break of the trend saw the divergence whip back up as the two markets started to converge again. CFD traders had to keep a razor-sharp lookout for this sudden change in direction, with many unwinding their positions and reversing again.

Clearly this is a trade only suitable for those traders who are comfortable with risk and are able to spend a great deal of time watching and trading the markets. For most of us, a good way to start pairs trading is same-sector individual stocks. But once you start with pairs, who knows where it will take you.

So, let's see, what we have: we decided to write this guide and tell you about all the trading tips and strategies you need to know about. At trading cfd strategies