Top 3 Golden Rules For CFD Trading

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April 4, 2018 by tradersnote

There are many rules for CFD trading and you will be able to find a number of lists giving advice after only a simple internet search. Many of these tip articles have been written by CFD traders and they contain much useful advice, both practical and psychological, which you would be well advised to follow. For instance, if you take a leaf out of Marcel Link’s book and Preserve Precious Capital, then you will not go far wrong. Maximising your own skill sets through study and application will ensure that you not only have an edge, but that you improve it. Keeping a CFD trading journal with details of all your trade will help with the previous point. Similarly, being disciplined and preserving a positive mindset can only help, as can possessing clearly defined trading goals and sticking to them.

However, the first of our three golden rules for CFD trading is to keep careful control of your CFD leverage. Of course, leverage is one of the most attractive and one of the potentially most lucrative aspects of CFD trading. It can also, however, be a double-edged sword, and that sword is never sharper or more dangerous than when its wielder becomes overconfident. During the good times, when leverage is amplifying your profits, it is frighteningly easy to keep increasing your position sizes; if this threatens to happen then you need to remember that the big loss is approaching, and you could easily lose it all, so be aware of the risks every time you take a leveraged position. A general rule for beginners is to leverage up from zero to a maximum of three times the size of your account.

The second golden rule of CFD trading is to always use stop losses. Always, for every trade you make, make sure that a clearly defined stop is assigned to it. In fact, to be really safe, identify the stop when the markets are closed, and the price is not moving; in this way you avoid the sorts of emotions that lead to rash and bad decisions, often fuelled by wishful thinking. Hoping for a good result will make you no money. Decide on your stop after or before market hours and stick to it when you start CFD trading.

The third golden rule for CFD trading is to develop and define your trading plan and stick to it. Know your entry strategy, develop your money management strategy, and put in place your risk management strategy. Remember to identify a Stop Loss when you are in profit. If you are trading the fixed percentage risk per trade money management model, then make sure you know your initial stop loss level, so you can calculate your position size. Keep accurate records and keep up to date with trading statistics and the economic news in general. Follow these three golden rules and you will be on your way to making a successful entry into the world of CFD trading.

Spread betting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary.
The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.

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