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CFDs come with a high risk of losing money rapidly due to leverage. 71% of accounts lose money when trading CFDs with this provider. You should understand how CFDs work and consider if you can take the risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% 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.

79% of retail investor accounts lose money when trading CFDs with this provider.

CFD Trading

A look at the most useful CFD trading tips for beginners

cfd trading tips image representation with a trader teaching to students some of the tips

What is CFD trading?

In the early 1990s, the CFD market emerged and provided traders with a new way to trade financial assets. Compared to forex trading, which is limited to only currencies, CFD trading offers thousands of instruments to trade with, including cryptocurrencies, shares, forex, indices, and commodities such as gold, silver, and natural gas.

Both forex and contracts for difference (CFD) trading are popular investment options, but different factors affect these markets. Economic factors and global events influence price movements in the forex market, which is why the best forex trading tips require you to study worldwide macroeconomic events. Meanwhile, price fluctuations in the CFD market depend on the instruments traded; we will discuss various CFD trading tips later in this article.

With CFD trading, you can make a bet on whether a specific financial asset will increase or decrease in value. For instance, if you purchased a Tesla share CFD and Tesla’s share price goes up, so will the value of your CFD. Keep in mind there is a lot that goes into the process of CFD trading, from opening an account to making sure you’re selecting the right markets for your trading style.

How do you start CFD trading?

Now that you’re familiar with CFD trading and how it differs from forex trading, you can start completing the steps to make your first CFD trade. These steps include:

Choosing a CFD broker.
Creating and funding your account.
Finding the right CFD trading style best suited to your needs and interests.
Building a trading plan.

Choosing a CFD broker and creating your account is the first step. Once you have completed this, you will fund your account with the payment methods available. If you’re new to this market, one of the best CFD trading tips given by well-known traders is to first build your market confidence by opening a free demo account. That will allow you to learn the ropes of CFD trading in a risk-free environment before placing real-money trades.

Furthermore, before making real-money trades, you want to build a trading plan. This plan will act as a blueprint for all of your CFD trading activity, and it should include everything from available capital to your time commitment. Of course, before you can build this plan, you will need to understand your trading mindset to find the CFD trading style that best suits your needs and interests.

CFD trading styles

There are several different types of CFD trading styles, and each has its own advantages. They are as followed:

Day Trading
Day trading involves buying and selling financial assets that are entered into the market and exited on the same day. Day trading is risky with high rewards, and it requires traders to understand how details like volatility and liquidity can influence the markets. There are many advantages of day trading, however. For instance, you will not incur overnight costs because all trades are opened and closed on the same day.
Swing Trading
Unlike day trading, which sees traders hold assets for less than a day, swing trading involves keeping assets for several days. This type of trading allows individuals to capitalise on short to mid-term gains on any financial instrument. Among the different hacks to CFD trading, adopting a swing trading style is the most common advice for new traders. Why? Because it’s less time-intensive than day trading and requires less analysis, which allows for more simplified trading.
Position Trading
Position CFD trading sees traders hold assets for months and sometimes even years. Since these trades focus on long-term trends, position traders can ignore minor price action. There are many advantages to position trading, including that traders experience less stress in the market than other traders and that it’s a long-term strategy that can lead to considerable gains.
Scalping is a fast-paced day-trading strategy that involves buying and selling frequently and profiting off minor price changes. Since scalping involves holding trades for short periods, you can carry out multiple trades simultaneously, allowing scalpers to build bigger profits. There are many advantages of scalping, such as reduced risk and no rollover fees, eliminating extra costs. If you’re someone who can make quick decisions and handle stress, scalping is a CFD trading style that might work best for you.

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CFD trading tips

As we mentioned, one of the main CFD trading tips given to new traders is to set up a demo account with your chosen broker before making real-money trades. That said, there are a number of other tricks to follow for creating the perfect CFD trading plan. These hacks include:

Using trading disciplines to guide your entry and exit
Using stop-loss orders to manage risk
Cutting Your Losses
Not putting all of your eggs in one basket
Having backup equity/cash in your account
Use Trading Disciplines To Guide Your Entry And Exit
One hack to CFD trading is using technical analysis and fundamental analysis to guide your entry and exit in the market. In particular, position trading benefits immensely from fundamental analysis. Most position traders use fundamental analysis indicators like historical price patterns and macroeconomic trends to make their decisions.
Use Stop-Loss Orders
By far, one of the most useful CFD trading tips available is to use stop-loss orders. Stop-loss orders let you limit your downsize, and many well-known traders recognise that the stop-loss order is one of the simplest ways to manage your risk. For instance, even Bruce Kovner, an American investor, has said that whenever he enters a position, he always has a predetermined stop-loss.
Cut Your Losses
Again, cutting your losses is another trick that even the most well-known traders use, including Paul Tudor Jones, the American billionaire hedge fund manager known for his macro trades. Loss aversion is one of the most common problems in trading, and to avoid it, you have to be able to recognise when your position is going against you and when to get out. In other words, if things go south with your CFD trading, don’t stay and chase after your losses. Once you’re out, you can always get back in it.
Don’t Put All Your Eggs In One Basket
One of the great things about CFD trading is that it provides traders with the opportunity to trade several types of assets rather than just currencies. However, just because you have access to a variety of markets doesn’t mean you should put all of your eggs in one basket. For example, oil stocks like Exxon and Shell are correlated, and as such, they tend to move in the same direction. If you’re wrong about going all-in on these assets, you’ll be wrong big time. That’s why one of the most useful tricks to seeing success in CFD trading is to diversify your trading portfolio.
Have Back-Up Equity/Cash In Your Account
Even after a few years of CFD trading, you will have days where your trades go against you. When this happens, you fall below margin requirements. Some CFD brokers won’t issue margin calls, but they will liquidate some of your positions, which is why it’s important to have extra cash or equity in your account in case you need additional margins.

What are the next steps in CFD trading?

Our CFD trading tips, such as finding a reliable broker, knowing your trading style, and using stop-loss orders, are a good start for new traders. However, there is always room to learn more. For instance, aside from swing and day trading, there are other CFD strategies, such as news-based trading. You can read more about this strategy here. Once you understand the different tricks to CFD trading, the next step is to start exploring available CFD platforms like Skilling Trader, which provides an intuitive trading experience for which you can learn more here.

Not investment advice. Past performance does not guarantee or predict future performance.