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10 golden rules for CFD trading beginners

  • Post category:Education
  • Reading time:11 mins read

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Anyone entering CFD trading can quickly lose sight of the essentials with all the available resources, hints and books. In this article, we briefly summarize the 10 most important tips that should not be forgotten and that will protect beginners from unpleasant experiences.


#1 CFD Trading: No Substitute for Long-Term Retirement Planning!

CFDs are derivatives, i.e. they reflect the value of an underlying, such as a currency, a share or a commodity. Traders take advantage of even the smallest price fluctuations when they bet on the development of the value. In doing so, it differs fundamentally from classical investing, as it is practiced, for example, to build up a retirement provision: Positions are not opened and maintained for years or even decades, but are often closed again after just a few days, hours or even minutes.

Trading CFDs is therefore more speculation than an investment. Especially due to the sometimes very high leverage that is used, the risk for the capital used is extremely high - traders must expect a total loss if they do not know what they are doing. However, the other side of the coin also has positive aspects: When trading CFDs, high profits are achievable, which often beat the returns from classic investing. This is in the nature of things: When investing, the capital should be increased slowly but surely, with CFD trading, an income in the here and now is the goal.

Whether a speculation is successful. depends on many factors and can not be predicted with certainty. Therefore, it is important to minimize risk and to think carefully about how much capital should be used for CFD trading. You should be prepared for a total loss - so only use money whose loss you can cope with in the worst case scenario!


#2 The basics count!

Before trading with real money, it is incredibly important to be familiar with the basics. In concrete terms, this means knowing the CFD instrument and understanding its operating principle, but it is also imperative to master other details: If it is not 100 percent clear what leverage is and how it works, misunderstandings and possibly sensitive losses are pre-programmed. You should also know all the terms and costs that can arise, such as the term spread.

With CFD trading it is possible to win money, but it is also possible to let a pile of capital fizzle out to nothing. In order to minimize the risk of loss, a comprehensive knowledge of the systematics behind stock exchange trading is necessary. After an extensive theoretical research, the peculiarities of the selected trading platform should also be mastered.

Most CFD brokers offer free demo accounts where you can test your CFD skills.


#3 Choose the right CFD broker

In Germany, many companies offer consumers a platform to trade CFDs. In essence, they all have the same functions, but there are major differences in the actual design of the interface. For beginners, a cluttered layout can quickly confuse and even cost money if input errors are made as a result. User-friendliness is one of the most important criteria!

In addition to the online platform, a possibly available app that allows trading on the go should also be clearly and attractively designed. It is worthwhile to rely on a provider that provides mobile trading, as CFD trading can thus be monitored and possibly corrected from anywhere and at any time.

In addition, the technology in the background should also be right: Prices on the stock exchange change quickly and so the provider should be able to reliably display the prices of CFDs and quickly execute placed orders. Money is at stake - there should be no lack of trustworthiness and reliability! During very hectic periods on the market, we sometimes hear from users that CFD brokers are not available.

To better find your way through the jungle of CFD brokers helps our CFD broker comparison.


#4 Start with play money on demo account

After the theoretical introduction to the subject of CFDs, many beginners quickly itch in the fingers, the theoretical knowledge should be put into practice. Of course, this makes a lot of sense in principle, but especially at the very beginning you should keep your distance from real money. Many trading platforms offer so-called demo accounts, where a securities account is simulated and CFDs can be traded fictitiously. However, the results are only reflected in the play money account.

Such an account can be very useful to get acquainted with the interface of the platform used, test first strategies and get a feel for the market, but eventually you need to have the courage to switch to a real money account at some point. This is the only way to get to know real trading, as a lot of emotions are involved when your money is on the line.


#5 CFD Beginner: Use small amounts!

If the step to the first own real money account is done, beginners should heed an important basic rule here: Do not bet too much at the beginning! The first thing is to get a feeling for trading with real money and a position can also slip into the loss zone. Therefore, at the beginning you should limit your total stake as well as the individual position sizes.

Even training with a demo account cannot replace this initial learning phase. This is mainly due to two emotions: Greed and Fear. When trading on the real money account, the commitment to the capital is understandably much higher and so it is necessary to work out a risk management that creates the optimal balance between too risky behavior in the demo account with play money and too cautious trading with real money. Only then is a good return possible in the long term - a good result in the demo account is of little use, after all, the profit there does not end up in your own account!


#6 Control emotions

This sounds easier than it is: As a trader, you should keep your emotions under control. CFDs often have strongly fluctuating prices and this volatility, which is reflected in the position overview quasi directly on your own capital, can be quite stressful. Therefore, it is all the more important not to neglect one's knowledge and fixed strategy. The strategy gives consistent structures that stand above the emotions and can always give rational guidance on how to act.

In risk management, both fear and greed must be conquered. Losses must simply be limited above a certain level - the fear of actually realizing a loss must not deter such a strategic decision. Equally, however, greed must not be allowed to get the better of us: A position in profit does not yet correspond to a plus on the CFD account. For this, the profit must be realized and the position closed. In the hope of further price increases, you should not get into a frenzy and try to take the last additional euro, otherwise a position quickly falls back into the red and you have made no profit at all.

The learning process required for this mastery takes time, it cannot be shortened. Over time, a successful strategy will emerge. It is important to return to this tactic again and again and not to act impulsively. In the beginning, however, even mistakes are not bad, because only from them you learn - they show problems that you will certainly avoid later! Among traders they also say: "If you have not made a loss in the first year, you are very good."


#7 Choosing the right assets

A CFD is a derivative and its value therefore always relates to an underlying, i.e. a specific other asset. There is a large selection: In addition to classics such as stocks and indices, speculation with normal currencies, cryptocurrencies and commodities is also possible. It should be noted that for all these values a completely different market environment applies and other influencing factors affect the price. Therefore, you should ideally be well acquainted with the underlying assets to which you want to refer with the traded CFDs.

In every area of trading the following basic rule applies: "Only trade what you know! You should therefore only invest your money in areas where you have sufficient background knowledge and can adequately assess developments. This prevents wrong decisions and an overestimation of one's own position.


#8 Chart analysis - a useful tool

Chart analysis is a working technique that makes it possible to estimate the trend of a performance and to predict upcoming developments within a certain framework. It is also called technical analysis or chart technique. It is not without controversy, but especially for CFD trading it is a very helpful method. Favorable entry and exit points can be determined and sensible strategies can be set.

All the techniques of chart analysis would fill thousands of pages. For the beginning, it is definitely not necessary to have all this knowledge at hand - the most important basic knowledge is quite enough! It is by no means necessary to master exactly all the indicators that the relevant platforms offer: A basic understanding of trends, trend lines, support and resistance and from the indicator area the Relative Strength Index and the Fibonacci retracement are sufficient.

In addition to predicting whether a particular position is worthwhile or not, technical analysis can also provide information on how to manage risk in an individual case. First of all, the question can be answered whether and where a stop loss, the most important instrument of risk management, should be set. If it is strategically set at an important resistance point, it can react quickly in the event of a trend reversal and save losses.

Learn everything in our article Important about the chart analysis and continue your education.


#9 Do not act for the sake of acting!

Especially beginners are often eager to apply their knowledge on the market. All the more annoying when then apparently no favorable trading opportunity arises. In this case, however, you should not trade by hook or by crook and end up taking positions that are actually not an option from an objective point of view! It is important to keep a clear head and keep your feet still if nothing suitable arises.

It makes much more sense than frantic trading to simply take a trading break. Clear your head, do something else, let time pass - and soon the market will be full of opportunities again! Because even if only small positions are taken that promise little success, constant losses will still lead to a meltdown of the capital.

It is also important to always keep in mind that perhaps only 20 or 30 percent of the trades will be successful, but the profits from these positions will easily offset the losses from the remaining trades. Even if you seem to be on a dry spell, this is no reason to bury your head in the sand or despair - opportunities will present themselves again and compensate for the stagnation.


#10 Do not lose sight of costs and spread!

How much profit is at the end of a trade depends not only on the price development: The spread and other costs also play a role that should not be forgotten. For example, costs are often incurred when a position is held overnight. The so-called overnight financing claims a part of the order volume for itself. However, the exact amount of these fees always depends individually on the provider and the traded assets.

Another source of fees is the spread. It refers to the difference between the buy and sell value at any point in time. This is also the reason why after opening a position you are always slightly in the red until the price develops further. It is therefore worthwhile to bet on markets and assets where there is not too large a spread. This saves cash money overall! The losses that are generated in this way can amount to several percentage points and thus create a disadvantage that must first be compensated for by price developments.