There are so many options to trade in your chosen market but there are only very few who are catering to the needs of new traders or retail traders whose budget isn’t that abundant. CFDs for instance are a great option to take on.
Contract for Difference (CFD) is a derivative product where you can speculate without owning the underlying asset. It offers you high levels of returns but it is also very capable of making you lose all the money that you have in your trading account and more. When trading physical stocks, you have to prepare a huge sum of money because you ought to buy the full amount of the stocks before you can start to speculate its market value. But with CFD trading on stocks, you get to speculate after paying a small deposit which is part of the full value of the asset.
Additionally, you also get the advantage of not paying for the stamp duty because you don’t own the underlying asset. Most of the time, traders speculate on CFD rather than buying physical stocks because they are cost-efficient and advantageous as long as you can use the leverage appropriately to your advantage.
How To Trade CFDs and Take Advantage of Its Benefits
Different brokers offer different facilities to effectively trade CFD. Most of the time, traders are being offered to use the trading platform MetaTrader 4 together with their primary platforms so they can effectively trade better. Here are the additional rules that you need to follow;
Cut the Losses As Much As Possible
The biggest challenge among CFD traders is to cut losses while letting the profits run. Once you achieve this state, you are most likely a successful trader already. So how should you do it? It takes a lot of discipline to accomplish this rule. One of the primary reasons why traders lose money in the market is that they tend to lock in their profits too quickly. Trading CFDs is a game of numbers. Remember to always use tools and indicators to help with your trades.
Avoid Overtrading
The most common reaction of a trader when he loses money is to overtrade. When the trader overtrades, that’s the time of the real nightmare. If you are on the position side, you get to become a big winner. However, if you are at a loss, then you will surely be in trouble. Once you receive a margin call, then you will have to deposit again to keep your positions active without the broker voluntarily closing your positions.
Diverse Positions
CFD brokers have a certain facility that allows the traders to make a profit even when the market falls. Because of that, you are allowed to hold a variety of positions but still remain to be market neutral. One important rule that you have to follow is that CFD traders must not open huge positions and pray for it to be at its best. This is especially true for new traders, never underestimate the power of leverage on your trades. You might find it very convenient to trade with a small deposit but at the end of the day, if you lose then you also lose your initial deposit and even more.