If you are looking for a secret formula to attain success in trading the fastest way possible, then you are just wasting your time. You cannot become a CFD trading millionaire overnight. But with these 8 key points about CFDs, you will avoid getting into the pitfall of losses.
Always utilize a stop-loss order
This is the first rule and the most important rule too. Using stop-loss orders will limit the downsides of trading and it will help guarantee that you will never get bankrupt.
Take advantage of demo accounts
Using stop loss is important and trying it on a demo account gives you the security that your trades won’t fall short. CFD brokers mostly offer demo accounts for free. It is a very good place to test your trading strategy and your risk management strategy and that includes your stop-loss order.
Research about CFDs
In CFD, you must do your research before trading in the live market. It is very important that you know what you are doing before you end up taking the consequence of losing your trading fund. CFDs has its own advantages but it also has several risks that are capable of dominating your trading account. You cannot rely on the word of mouth that you heard from your friends and colleagues, you must do your own research.
Have a limited leverage
Leverage is a good thing if you handle it correctly. But it is a double-edged sword, meaning, it is capable of mirroring your gains but it can also be the means of destroying your trading account. For this reason, you must try to limit your leverage as much as possible.
Using the correct trading position
There are CFD brokers who won’t allow you to manually lower your leverage. If this happens, all you have to do is to lower your trade position and be aware of your risk exposure.
Create a trading strategy
Before you start trading, you have to make sure that you create a trading strategy that will guide you to your goal in trading. For instance, you should have a clear plan of when and where to close your trading position or what you should do during worst-case scenarios.
Cut your losses as soon as possible
Losses are part of trading. You can minimize it but you cannot remove it totally. This is why, when things go south and you are placed in a difficult position, do not hesitate to cut your losses as soon as possible. There are traders who tend to drag their losing trades way further because they are hoping that the tides will turn to their sides once again. You shouldn’t do that. When you set your rules, you must stick to it as indicated in your trading strategy.
Avoid putting all your funds in one trading position or market
One of the advantages of CFD trading is that you can trade in multiple markets in a single platform. In this case, you have an array of options to choose from. You can also use your funds in a couple of trading positions.