Contracts for Difference (CFDs) are arrangements made in financial derivatives trading. The difference in the settlements between an open trade price and a closing trading price is cash-settled; no delivery of securities or physical goods occurs with CFDs. Traded directly with a broker instead of the market, CFDs allow buying and selling of underlying instruments at a future point but at a rate stipulated today. So, be very careful while trading CFDs. This article will discuss how to make a trading plan for trading CFDs, the tips to become a successful CFD trader, and how to find the best CFD broker.
How to Build a Trading Plan for CFDs?
The goal of CFD trading is to close positions with profits. To do this, you need a plan. Since CFD trading is leveraged, a good CFD trading plan is vital to have. Once individuals know about the advantages of CFDs trading, they wish to get started right away. But resist the temptation and spend time considering how you will approach and handle your CFD trades before putting your capital at risk. To build a CFDs trading plan, consider the following:
Your Strategy: Create a strategy that you can use again and again. Without proper planning and trading strategy, you would find it hard to find out what happened because of good management and what happened with your luck.
Entry Point: You should find out which trades you want and what circumstances will activate an entry in a position. Ensure that you do not change reasons for entering a trade after entering it. After you begin doing it, you can explain getting into a trade by changing the reason around.
Exit Point: You should know where you’ll exit a position. Also, make out how much risk you can take before placing a trade. Although you cannot tell your exit point always, you should be clear with the conditions that should be satisfied to exit a trade.
Record-Keeping: Be clear about keeping a track record of all your trades. With proper record-keeping, you can look back and find out things you need to change.
Tips to Trade CFDs Successfully
If you want to bolster your profits while trading CFDs, you should consider the best tips given by the experts. Learn from the mistakes of top traders and avoid falling into expensive pitfalls.
Maintain a Journal
Keep a journal to write descriptions of your crushes for entry/exit points, position size, price, and more. It will be your trading book to look back at your mistakes. A CFD trading journal is often overlooked, but its use can be invaluable. By maintaining a CFD trading journal, you can identify patterns, streamline strategies, and look at your emotions while trading. A good CFD journal should include:
- The instrument
- Reasons for a trade, news-based, technical, and more
- The time of entering/exiting a trade
- Was it a loss or profit?
- Your learnings from the trade
- Review of the trade performance
Control Your Leverage
If you make the right trade, leverage can be your biggest asset. If you are winning, you are attracted to boost your position size. But there is a possibility of loss as well. You have to be smart. No one wants the stress and margin calls that come with huge losses. To begin with, you should start small. As your money grows, you can increase your leverage slowly.
Education
The best traders and investors don’t stop learning. Stay updated with the market developments while perfecting and practicing CFD trading strategies. You can also learn from successful traders. For this, you can use many resources like courses, blogs, forums, PDFs, videos, eBooks, and more.
Use Stops
If used correctly, stops can help minimize your losses and keep you longer in the game. Every trade you make should have a clear stop. Ensure to outline a CFD stop out of the market hours and religiously stick to it. It will help you predict maximum losses.
Demo Accounts
Once you have done your research and got the capital for trading, it is hard to resist trading. Test your strategies using a demo account. Most brokers these days offer practice accounts. These accounts have virtual money. It makes them the best place to try their trading strategies and make mistakes before investing real money. Demo accounts are also an efficient way to try a broker’s CFD trading platform. With them, you can ensure that the broker has all the analysis and charting tools a trading plan needs.
How to Choose a CFD Trading Broker?
To assist you in the broker selection procedure, here is a guide of main factors that you should look at while selecting a CFD trading broker:
Regulations: This is the first thing to look at when choosing a CFD broker. A good broker should be regulated by competent regulated agencies. For example, you must select the best Australian forex brokers regulated by ASIC if you are from the Australian region. By working with regulated brokers, you get the guarantee that the broker meets the standards imposed by regulatory bodies.
Trading Software and Platform: You should make sure that a trading platform is reliable. Most brokers offer traders many trading platforms to select from. A good broker has many trading platforms and the best software. The vital features of a trading platform include:
- Risk management tools
- 1-click trading
- Wide variety of technical indicators
- Complete charting package
Customer Services: Most new traders forget to consider customer services while choosing a broker. They don’t realize that customer services play an essential role in their trading experience. Irrespective of how knowledgeable or experienced a trader is, there is a time when help is needed. Check whether the broker has different ways to contact their customer support.
Account types: Most CFD brokers offer traders a range of trading accounts that cater to different types of traders. They generally include – a Micro account, a mini account, and a standard account. With both the mini and micro accounts, a low initial investment is needed to start trading. However, with a standard account, the minimum investment amount may differ from one broker to another. You should choose a trading account that best suits your investment capital.
Conclusion
Trading CFD is less risky as compared to other instruments. Still, it can be quite challenging to create and implement a profitable strategy while trading. If you wish to become a successful and profitable CFD trader, you’ll need to use various educational resources and follow the above tips.
However, now you have learned how to build a trading plan for CFDs, you also need to start with a good platform for it, check out the Review of CMC Markets and understand it in detail, and start exploring your strategies with it and earn huge profit.
