The ultimate goal of any CFD trade is to minimise your risks and maximise your profits. However, this is often easier said than done. Let us take a look at five expert tips which will help you to mitigate your risks without breaking the proverbial bank.
1. Know Your Stop Losses
Stop-loss positions are essential in order to avoid becoming overly exposed to a negative trade. As soon as the value of a CFD position reaches this predetermined point, it will be closed. As opposed to choosing this limit manually, it is best to set it before the trade is activated. This will guarantee that losses will not exceed a specific amount.
2. Only Invest What You Can Lose
As with any other financial position, never place any more into a trade than can afford to be lost. CFDs represent a certain amount of risk by their very nature and regardless of how “certain” a position may appear, even the experts are not always correct. Therefore, set limits in regards to your capital investment at any given time.
3. Keep Small Leverages
It is always tempting to push larger leverages in the anticipation of walking away a winner. There are two major problems with this approach. First, there are no guarantees that a specific CFD position will provide a profit. Secondly (and more importantly), high leverages can result in capital losses that far exceed the initial funds that were invested. It is best to avoid being tempted by leverages until you gain a substantial amount of experience. If you do indeed choose to incorporate such tools, their value should never exceed more than twice the size of your initial investment.
4. Follow the News
We are not simply referring to the latest CFD figures or the values of a specific underlying asset. We should never forget that extraneous factors will often have a direct influence upon the financial world. This is particularly relevant if you become involved with currency or commodity CFD positions.
Appreciate that geopolitical events and seemingly unrelated situations could suddenly cause prices to rise and fall. The best way to keep abreast of these (and other) situations is to trade with a reliable online platform which offers immediate access to late-breaking news.
5. Establish Realistic Trading Goals from the Beginning
What are the reasons that you have entered into the CFD markets? Are you looking for a source of short-term liquidity or are you instead planning on developing this hobby into a full-time career? Although reasons will vary, it is an undeniable fact that failing to set realistic goals can cripple such dreams. Establish your trading hours, your entry levels and your monthly capital allowance. These should be adhered to at all times. Discipline is very important in order to realise profits from both a short- and long-term perspective.
These are five tips which should always be used in conjunction with one another when formulating a successful CFD trading strategy. Although you will not accrue millions overnight, there is no doubt that a strong foundation is the key to ultimate success.
Find out more about CFD’s at CMC Markets.