Tips to learn CFD trading

Tips and tricks around CFD trading - tips for beginners and advanced traders

In social networks CFD trading is often presented as a way to get rich quickly. It is true that not only professionals can achieve quite attractive results. But in any case, it is necessary to learn the most important basics and improve your CFD trading. As an introduction, in this article we will give you some of the most important tips on how to get started with CFD trading.

#1 Research is always important in CFD trading

Before investing real money, you should do one thing above all: thoroughly inform yourself about all relevant aspects. This starts with the general market situation. By reading the latest stock market news, you can quickly gain an impression of what is currently happening on the markets. This allows important conclusions to be drawn, such as which asset classes are particularly worthwhile and less risky.

The very general market trend should also be examined in order to find a suitable entry point for one's trades: Is the market more bearish or bullish? Are there developments or news that will trigger large movements and volatility in the near future? All this is part of a well-founded initial stocktaking of the situation in order to be able to tune in well.

The next step is to choose a specific investment asset as the underlying of the CFD. Here you can follow up on the first results and search for suitable values in promising product classes. There are enough interesting values on the CFD market, the search only often needs some time and patience!

If you do not find a suitable asset, you should not despair, but simply continue to search - eventually the interesting CFDs will appear. Once you have found them, you should familiarize yourself extensively with the topic, for example by analyzing charts, researching the influencing factors and reading the news.

#2 Prepare structured trading plan

For long-term success in CFD trading, a tactical approach is essential. Therefore, one's own approach should be reflected and reviewed on a daily basis, especially with regard to open positions. The most important thing here is certainly the planning of take-profit and stop-loss.

It is indispensable to always adapt to the latest developments in the market. After all, especially in the CFD sector, trends can turn very quickly and so it should always be well considered to hold a position overnight, exposing it to potentially dangerous price fluctuations.

Often, one's own emotions stand in the way of success on the stock exchange. Especially spontaneous, emotional decisions can have negative consequences in CFD trading. In contrast, absolutely rational trading promises the greatest profits: In advance planning it is recommended to set up normative statements according to the scheme "If X, then Y" and to execute in this form also without hesitation and changes.

This still requires a great deal of discipline, but irrational decisions are kept to a minimum with consistent application. In the long run, it is simply part of CFD trading to close a position in the red once in a while. The earlier you acquire this mindset, the better.

Wrong restraint in this matter can cause losses later on larger positions, which grow and grow. They can even lead to a margin call because you did not get out of a loss-making CFD early.

#3 Trade familiar values as CFDs

CFD trading offers traders a huge variety of assets. It is important to note that these differ, sometimes seriously: A stock behaves differently than a currency and a commodity behaves differently than a cryptocurrency. The prices are all controlled by different influencing factors and it is absolutely essential to know them in order to be able to react to market developments.

Basically, it is advisable to work according to the principle "Trade what you know!". Specifically, this means that you should always use CFDs of asset classes with which you have experience and which you can assess well. This way, you minimize the risk of making mistakes due to lack of knowledge or experience, which can cost you a lot of money.

Of course, it will be unavoidable, especially in the initial phase, to sometimes lose a trade - that's part of learning, of course. But once you've established yourself in a niche, there's no need to inevitably move on to other areas where you have less expertise.

#4 Volatile markets - a supreme discipline

The special thing about CFD trading is the leverage used. These can mean profits or losses in large amounts even from small price fluctuations. In order to contain sensitive losses, an adapted stop-loss strategy should be implemented. High leverage is particularly dangerous in markets with high activity and therefore high volatility - gains can turn into losses in seconds. With our Stop Loss Calculator you can easily calculate your limits.

Especially in such highly volatile markets, it has proven to be a good idea to liquidate profits quickly. Because strong fluctuations do not have to be negative; if handled correctly, they can be quite lucrative! Here, one should rather refrain from holding CFD positions over longer periods of time or overnight and should resort to classic day trading in order to be able to skim off an increase in value quickly and without risk.

#5 Only the real profits count

If the trading platform shows a big plus next to a CFD, then of course every trader is happy at first. But something should not be forgotten: A book profit does not make an actual plus on the account! An open CFD position, which is just in the profit area, can quickly turn around and lose value. A profit is only secured when the CFD position is closed and the money is safely booked. How your CFD reacts to price changes, you can see in our CFD calculator for profits and losses calculate quite simply.

Since ultimately only the realized profit counts, one should especially keep in mind with a peculiarity: Many CFD brokers already increase the margin with book profits, which enables the opening of new positions. If this possibility is used, it can quickly come to the notorious margin call. The total loss is then no longer far.

#6 Do not trade CFDs haphazardly

Some days, no interesting CFDs open up and you're put on an unwanted trading hiatus. And that's okay! After all, it doesn't hurt to get your head free from daily CFD trading. A much bigger mistake in this situation would be to frantically search for trades and then settle for half-baked CFDs that only yield losses in the end. It saves money, time and nerves to simply take a break at such times and wait for new, more promising opportunities.

If you do find a promising trade, then here again planning is the absolute be-all and end-all that leads to success in the long term. This includes the selection of an entry point, but also an exit point. In both directions, both with profits, but also with losses. Stop loss and take profit are determined once justified and then basically considered fixed!

This is especially true for the stop loss: If at all, it should only be moved up, but never down, since it should be clear from the beginning how much money should flow into the trade. The situation is somewhat different with the take-profit, which can be handled somewhat more flexibly. It may also be raised or lowered afterwards. In general, CFD trading is something that you constantly adjust.

#7 Instructive is only the serious case

Demo accounts are actually available at every CFD broker. These enable beginners in particular to familiarize themselves with the tools of a platform. This way, they can get a taste of CFD trading without putting real money at risk. Here you can test out strategies and get a first feel for CFDs. This is certainly also very useful for absolute beginners, but one should be warned:

Trading with real money is something different and a CFD demo account only partially prepares you for real CFD trading.

This is because psychological factors, namely greed and fear, play a major role there. They significantly influence trading decisions where real money is at stake. So one of the biggest challenges as a trader is to suppress these sources of error as much as possible. At the beginning only one thing helps: experience, experience, experience! Only when you have experienced greed, fear and the respective effects on your own body, you can work on becoming more rational in the long run.

#8 The right position size

Especially as a CFD beginner mistakes happen. This is quite normal, you are in the learning phase and do not yet have an optimal feel for leverage and price fluctuations. But even in this time you can take measures to avoid big losses:

At the beginning, you should choose a reasonable, i.e. rather small position size. If you have deposited 1000 Euros with your broker, then you should not invest more than 10 percent, i.e. 100 Euros, in a single CFD. It is also not forbidden to play it safe and to enter even lower positions at the beginning in order to gain experience without great risk.