For beginners, CFD (Contract for Difference) might sound like a complex concept. But we are here to tell you that nothing can be further from the truth. In theory, CFDs are easy to understand, but they shouldn’t be underestimated, either. The concept of how CFD works is complex and multi-layered, but you don’t need to understand every detail behind the working mechanisms of CFDs in order to trade them successfully. Some CFD basics for beginners are shared here to make sure that you know how does CFD trading work.
CFD trading strategies for beginners
It’s important to learn about CFDs, because their importance is steadily growing: they currently account for as much as 25% of the daily turnover on the London Stock Exchange, sometimes reaching 50%. Getting started in the CFD market might sound daunting and overwhelming, but you don’t need to worry because we are going to walk you through everything, and after reading this guide you will have a much better understanding of the CFD market.
There are some useful strategies that you should implement when deciding to trade CFDs. Let’s take a look at each one of these pieces of advice and see how they can help you:
1. Research before taking positions
The one piece of advice that you should always listen to as long as you are trading is to ensure that you have researched your positions well before making a decision. Inexperienced traders often give in to the temptations of making trades and incur huge losses in the process due to choosing a bad trade position. Doing so is nothing short of gambling and will only make you lose money. Taking well-researched and analyzed trade positions will help you ensure that you are in a better position and turn in good returns on your investment.
2. Compare CFD brokers/trading platforms
For beginners, trading CFD might sound like an exciting avenue, but before making any actual trades, make sure you compare CFD brokers and trading platforms. Some brokers might offer more than others by way of better communication, complaint resolution or lower commissions. However, trading platforms tend to offer greater flexibility and an easier and more extensive access to exchanges all over the world. With trading shifting increasingly more online, platforms are taking up a greater share of the market.
3. Control your leverage
Never take your eye off the ball when it comes to CFD trading. Don’t be overconfident and use stop-loss strategies with all your leveraged trades. Losing small is much better than liquidating your entire account. All the successful traders use leverage but they do in a sensible manner with proper stop loss strategies in place.
Should a beginner trade CFDs?
The answer to this question depends on several factors, and there is no answer that fits all. If you are a person who is completely new to the world of trading, then trading CFDs might not be optimal. You can start with simple forex trading and then gradually move towards CFDs. But on the other hand, if you are an ambitious person with a can-do attitude, you can certainly become much more successful with trading CFDs than any other asset. At the end of the day, the decision will depend on you, but the potential upside of CFD trading does make it very attractive.
To sum things up, we have covered the basic knowledge about CFDs and how they are traded. We have also shared some valuable advice for anyone who is looking to start CFD trading. The purpose of this post was to familiarize you with CFD and make sure you understand how CFD works and whether it is a good alternative for you to consider.