CFD trading is now one of the hottest markets today due to the rise of interest in stocks and other forms of derivatives. Tons of people join in trading and instantly head over to CFDs and other derivatives and it’s no surprise!
Derivatives are a great starting point for traders since it’s high in leverage with a whopping 1:50. Although leverage can be bad at times, it’s often seen as a good thing for small or starting traders. That’s because high leverage means small capitals can get a chance to profit big.
So imagine wagering a $1000 and getting back a dazzling $50,000! But to be able to become a successful CFD trader, there are certain things you need to avoid at the start of your career. Steering clear of these ‘habits’ earlier on can make it easier to remove them later on.
So if you’re curious to know what these ‘habits’ are and how to avoid them, down below is everything you need to know:
1. Entering a Trade Without Prior Knowledge
One of the things most novice traders tend to do today is simply entering a trade they know nothing about. These usually happen when a derivative becomes popular and attracts attention. And since it’s trending now, most starting traders just invest right away and cross their fingers in hopes of profiting.
So that means, they don’t have a plan, a certain goal, or anything but just pure hope and curiosity. But trade doesn’t work that way, especially CFD trading. Derivatives trading can be pretty complex and volatile, reasons why it’s usually taken on by more experienced traders.
So before entering any trade, do your homework first and know the trade and its market like the back of your hand. Always remember, knowledge is power, especially in trade!
2. Not Having or Following Your Trading Strategy!
One of the essential things you need to have before trading is a strategy. Without one, you’re left defenseless and vulnerable that will later on result in a major loss. A trading strategy is like a gun and the market is the war zone. And everyone knows you can’t go to war without a gun!
So before investing, consider choosing a trading strategy that suits your trading style and preference. Once you find your niche strategy, follow it! Don’t make any decisions outside your strategy since this will defeat the purpose of having one.
A trading strategy is like a guide that’ll help you execute your trades. And no matter what your trading style and preference are, there is surely a strategy for you. In CFD trading there are 4 major trading methods.
What Are the 4 Major Kinds of CFD Trading Strategies?
Each of these strategies has its own unique set of processes, objectives and functions. To give you an idea, here they are in a list:
- Day trading – This is a short-termed trading strategy that allows you to open and close several trades a day.
- Hedging – This is known as the ‘risk management’ strategy since it lessens the risks when trading. This strategy allows a trader to hedge a trade by opening a new one. Hedgers to this to make sure a position stays open.
- Position trading – This is a long-termed strategy that can usually last around weeks, months and even a year. This strategy doesn’t care for small market movements and mains for grand price fluctuations.
- News trading – This strategy is also a short-termed method but what sets this apart from day trading is, this strategy follows certain things before speculating. Things like economic announcements, market expectations and so on.
3. Risking More Than You Can Afford
Admittedly, it’s easy to go off course when trading since this can be both exciting and nerve-wracking! But because of overtrading, tons of people fail as CFD traders each year. You’d think when you start trading, you can make a few bucks out of it but you’re left doing more harm than good.
Overtrading is pretty common, especially for hyped new traders. To stop this habit, try to avoid doing it when intuitions do kick in. While practising, you can try using a stop-loss order. This is used by various traders to help minimize the risk of loss.
Basically, this is an order you place with your brokerage/trading platform. What this does is, you set a certain price and your trade automatically closes when you reach that set price.
4. Being Too Complacent
Winning can be such a rewarding feeling, especially when there’s money involved. So it’s pretty easy to be complacent with yourself after a successful trade. And that’s when danger starts to creep in.
Complacency is one of the common reasons a trader loses a trade. This is because when a trader becomes complacent, they start to think anything they do equals a win or they’re on a winning streak and they can’t lose.