CFD or Contracts for Difference trading can be risky if you do not have your own strategy. It is a contract made between an investor and an investment bank. It is a financial instrument in which the parties involved can split the difference between the opening and closing prices, without the actual ownership of the specified asset.
CFD trading is a big betting game. Make sure you have an edge when you make the trade. This trading edge can be a money management plan, your own ability to perfectly time your entry technique, or your skill to win position and maximize a profitable trade. Your skills and abilities are definitely an edge that can give you your first million as quickly as possible.
Have full control of your CFD leverage. It is recommended to start your CFD leverage at a relatively smaller portion and keep your exposure lower than your capital base. For beginners, you may trade from zero leverage up to potentially 3 times your current account size.
Losses and failures lurk around each corner. It was previously mentioned that CFD trading is a bet, and losses are inevitable. Once you encounter a loss, stop your current trades. Doing so can gradually help minimize your loss which preserves your capital base. Every trade you make must have its own CFD predetermined stop clearly assigned and defined at a certain time.
Hedging CFDs can also be a great follow-up strategy. It is mostly used to keep your portfolio’s overall volatility at a lower level. It is also used when the market where the trade takes place is unstable. With this strategy, you protect yourself from a loss by short selling a CFD. It can double as a short-term strategy, which you can execute for a few days; or a long-term strategy that you can use for years.
Like any other market, you should set realistic goals. You can predict the number of years that the trade will last and set goals for each year. In this way, you can clearly see if you are making progress or not. If there is a consistent increase in progress, continue the trade. If there are more losses than gains, you should plan an action to protect yourself from more losses. Your goals must be realistic; do not place your head as high as the clouds. By placing realistic goals, you are more likely to achieve them.