CFD or Contracts for Difference is increasingly popular among professional traders but everyone can really use it. If you check some reputable online trading platforms, you will see that trading CFDs are widely offered, just like Forex trading. It may be a high-risk investment but if you try to understand what is CFD trading, you will minimize the risk and achieve great results.
Going ‘Long’ and ‘Short’ in CFD trading
CFD is a derivative instrument that lets traders speculate on the rising and falling of the asset’s price. There are a lot of assets you can trade in CFD and you can pick whatever you’re comfortable with, be it indices, foreign exchange, stocks, or commodities. There are 10,000 global markets accessible in CFD. And since trading on CFD is leveraged, you are not required to pay a huge capital to open an account.
There’s a huge difference when it comes to trading CFD and security. In CFD, you don’t have to actually own the underlying asset, which is good because you don’t have to spend so much on the capital. With a minimum deposit, you can start to speculate in the market whether the price of the underlying asset will rise or it will fall. All you need is to predict its movement and you will benefit from it, whether it rises or falls.
Trading Without a Plan
Trading is full of thrill and surprises, especially for starters. The thought of growing your account balance in every click you make is just purely fascinating. But this is just a phase before trading gets more serious and starts to exhaust you especially after suffering a huge blow over a losing trade. Trading must be taken seriously. Time and energy need to be invested into it.
Having A Trading Plan But Not Following It
Your trading plan doesn’t need to be complicated and hard to follow. If you plan to succeed in trading, create a trading plan and stick to it, no matter how hard the situation goes. Whether you are trading cryptocurrencies, Forex CFDs, or any market, your approach must be the same because this is the recipe to success and a long-term bountiful career in trading.
Not Using Stop Loss
You cannot maximize your upside if you fail to minimize the downside in trading. To do this, you have to learn to use stop-loss order and know when you should cut your losses. Your trading plan must also include the use of stop losses.
Misuse of leverage is quite common when trading CFDs and other individual Forex traders. There are a lot of traders who miss the point of leverage offered by CFD brokers. It is very important to utilize position sizing. Set the size of your trades and utilize stop loss. This should add to your recipe for success.
There are advantages that worth to be noted but there are also disadvantages that need to be properly understood. It is important to know what is CFD trading after all so you can make the most out of it.