CFD trading tips and tricks. Learn to become a master today

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Forex and CFD trading best practices: An introduction

Updated: 04 March 2020

Nigel has been in the regulated financial services industry for nearly a decade, has previously owned a financial brokerage and has written many times for sites relating to personal finance and trading.

Trading in forex and CFDs involves potentially bigger profits than normal stock trading, but there is also a much greater level of risk. Higher risk comes with the territory in any form of leveraged trading. Here are some trading tips for minimizing your losses.

Live for leverage and know what it involves

Because you don’t need to own anything fully in the way you need to own shares when trading in CFDs, you are using leverage. You are putting down a reduced sum of money and essentially betting that a future outcome will go a particular way. For every point it goes your way, you win big – but the same is true for every point it goes against you. One of the most fundamental factors to get right, therefore, is to always consider your leveraging carefully according to your account volume.

Master market assessment

When it comes to being able to study and gauge the market, the best thing to do is make a meal of it – enjoy it, savor all the courses, and dig in for dessert. If you don’t relish doing this, convince yourself you do as it will be critical to your success. In forex and CFD trading in particular, your profit depends on market movement and how well you anticipate it. Critical to mastering the market is always being familiar with central bank decisions and monetary policies in the areas in which you are trading, especially when dealing with forex. Putting mechanisms such as stop losses in place is essential, provided you don’t factor it in too narrowly.

Use stop losses to help when the market is volatile

Setting up automated stop mechanisms, such as stop losses, to close your trading order is always wise, and it can even be critical in volatile markets. It can’t help you circumvent loss completely, but it can alert you to a tricky position and minimize your losses.

Watch out for market gaps

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These show up on trade charts as huge leaps in price. They usually occur when the market is closed, but the market can also open to highly unexpected news, causing the same effect. Even automated mechanisms such as the stop loss will only close orders during the next quote after the jump – they can’t kick in mid-leap.

Understand what to factor in when setting your stop loss

We’ve spoken about a stop loss not being able to kick in during a market gap and the pitfalls of it being set within parameters that are too fine. Setting the right stop loss limit can be tricky, but these are the questions you could ask:

  • What is the goal price, and when do I expect to get there?
  • What is the time frame for the trade? Usually, the longer you’re in a position, the more volatile trading is.
  • How big is my account and current balance, and what loss can I absorb?
  • Does the scale of my order size match my account balance, time frame, account size and current market situation?
  • What is the overall market sentiment, and how will this influence where I set the loss mechanism?

Know that your order size has an impact on profit

Even so-called trading gurus do not make profits with every single trade. It is reasonable to expect five to eight profitable forex trades out of 10. This means you must calculate your order sizes based on whether you have sufficient capital to outlast market movements.

Factor in the unexpected

Always be aware that the unexpected can happen because of external factors. These can range from weak internet connections and power outages to urgent errands popping up in your day that make it impossible for you to trade.

These are some introductory tips and tricks you must have in your forex and CFD armory, but there are many more intermediate ones you also need to know about, such as the Fibonacci Theory. Without a good grasp of the basics, you are doomed. Understanding leverage is key, as is the comfort of knowing you’ve put the correct stop loss mechanisms in place.

How can I learn tips and tricks of CFD simulation? I want to learn the art of CFD simulation, not theory, as I know theory. Is there any book or reference for it?

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To my understanding, the adeptness in the art of CFD, is the possession of a wise judgement on numerical activities going on in the background of any commercial tool and the ability to identify the minor cracks in the simulation results.

A very fundamental but a small slice of this wisdom comes with the in-depth understanding in theories of fluid mechanics, heat transfer and CFD.

The next biggest share of the slice can be acquired by undergoing short self assignments. Some of the self assignments could be, writing a codes to solve Navier stokes equation in 2D, validating it with benchmark cas.

CFD trading tips and tricks. Learn to become a master today

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Company Number 40313

Risk Warning: Trading Forex and Derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary. A Financial Services Guide (FSG) and Product Disclosure Statements (PDS) for these products is available from Titan FX Limited (previously named TI Securities Limited) to download from this website or hard copies may be obtained by contacting the Titan FX Limited office. The FSG and PDS should be considered before deciding to enter into any transactions with Titan FX Limited. Titan FX Limited is incorporated in Vanuatu, company number 40313, and is regulated by the Vanuatu Financial Services Commission. The PDS available on this website does not constitute an offer to any person of any interests to whom it would not be lawful to make such an offer. United States, New Zealand or Vanuatu residents are welcome to browse our website but please note due to regulatory limitations we are unable to accept any United States, New Zealand or Vanuatu resident as a client. The information on this website is not directed to residents of any country where FX and/or CFDs trading is restricted or prohibited by local laws or regulations.

Top CFD rules for traders

In recent years, Contracts for Difference have gained enormous popularity among traders all over the world, and the interest is still growing. However, in choosing CFDs, many newbies still don’t realise exactly what they are doing and continue making some crucial mistakes.

Let’s see, how we can close the knowledge gap and learn some major CFD trading rules on how to do it successfully, or at least, what to start with.

Rule #1. Understand what a CFD is

I’m afraid to sound like a Captain Obvious, but in order to start trading, like in any other business, you should exactly understand WHAT you’re trading and HOW to do it right.

A Contract for Difference , or a CFD, denotes an agreement between a trader and a broker to trade on the difference, speculating on the instrument’s price fluctuations. The main difference of CFD trading is that you don’t actually buy or sell the underlying asset (a share, commodity, index, or cryptocurrency).

To cut a long story short, watch our “What is a CFD” video and use it as a short guide to start:

Rule #2. Control your CFD leverage

One of the major advantages of trading CFDs is that you don’t need to pay the full cost of a chosen asset. You can trade on margin , which means your broker leverages your capital for you to trade a particular instrument. In this case you have to pay just a certain percentage (or margin) of its full value.

Traders may prefer to enter trades that may at least double their money. Trading CFDs makes the situation even more attractive, providing much better opportunities and offering leverage.

Sounds too good to be true? While the situation turns in your favour, it can work out well for profits. However, greater leverage presupposes greater risks. So, you’d better start small with your CFD leverage and keep your total exposure relatively low according to your capital base.

Rule #3. Religiously use CFD stops

Stop losses. An absolute must-have, in our case, a must-put.

I’m sure you’ve heard that stop-losses are an effective way to cut your losses and reduce trading risks in case the market price goes against you.

Historic oil price drop
Don’t miss your trading opportunities

There are two major reasons, why stop-losses are so popular: to save you from significant losses or to lock in gains. When used effectively, stop-losses may help you to take profits when your positions are favourable. Also, they can perfectly cut your losses short, when the market’s trend changes its direction against you.

Properly set, stop-losses become a trader’s ‘best friends’. Take a few minutes to watch a short guide on how to set a stop-loss using the ATR method:

Rule #4. Make a realistic plan and stick to it

It’s always easier to go somewhere, if you can clearly imagine what to expect when you reach the destination. Starting your CFD trading journey, try to identify your primary goals and gradually fulfil your trading plan.

A comprehensive investment plan will help you keep your head clear and eventually achieve what you want. I’m sure you’ll find people in the investment world, who made huge money just thanks to their gut feeling. However, these people are an absolute minority.

The vast majority of people, who enter trading without a proper plan end up losing money. Don’t join them. Elaborate your entry strategy, define your money management strategy, keep your trading journal, learn from your mistakes and track every step you make.

Rule #5. Stay calm and keep going (aka never give up!)

Trading is always risky. Risk makes our heart beat stronger, drives the feeling of excitement and adventure, fear and frustration.

Your task is to keep your head cool and stick to your plan. Never let your emotions rule your trades. Biased trading behaviour may bring significant losses, so your challenge is to be disciplined.

There are no wins without a loss. Be ready and keep a positive mind-set. Use our CFD trading tips and become a successful trader.

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US30 USA 30
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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read our Risk Disclosure statement.

Risk warning: transactions with non-deliverable over-the-counter instruments are a risky activity and can bring not only profit but also losses. The size of the potential loss is limited to the size of the deposit. Past profits do not guarantee future profits. Use the training services of our company to understand the risks before you start operations.

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