Every week we provide insights into popular assets and hot questions, so you can easily learn more about the investment market in bite-sized pieces.
In this Markets in Focus we take a closer look at the top 5 basic rules for CFD trading.
Top 5 basic rules for CFD trading
CFD trading allows you to profit from the fluctuations in asset prices without actually owning the underlying assets. With the advantage of leverage, you can take larger trading positions through CFDs by only investing a fraction of the total trade value. However, to maximize the benefits of CFD trading and increase your profitability, it’s essential to adhere to certain rules. Here are the top 5 basic rules for CFD trading that every trader should be familiar with:
1. Build Your Knowledge of CFDs
Expand your understanding of CFDs (Contracts for Difference). Learn how CFD trading works, the various assets available for trading, and how to identify those that align with your trading goals. Here are some key points to know before you start trading CFDs:
- A CFD is an agreement between a trader and a broker.
- You can trade indices, forex, stocks, gold, commodities, and even cryptocurrencies through CFDs.
- CFDs allow you to trade the future price movements of an asset without an expiration date.
- CFDs are leveraged products, offering leverage up to 30:1.
2. Always Stick to Your CFD Trading Plan
Create a well-thought-out trading plan and adhere to it consistently. Your plan should include specific criteria and goals to help guide your trading decisions. Ensure that your trading strategy aligns with your long-term objectives and goals.
3. Make Use of Leverage
One of the key advantages of CFD trading is the ability to trade with leverage. This means you only need to deposit a portion of the total trade value to control a larger position. For example, with a leverage of 5:1, a deposit of € 100 in your account allows you to borrow and invest € 500.
4. Diversify Your Portfolio
CFD trading provides access to various markets and assets, enabling you to diversify your portfolio. By doing so, you can potentially profit from both rising and falling markets.
5. Avoid Adding to Losing Trades
It can be tempting to buy more CFDs to offset past losses, but this strategy doesn’t always yield positive results. It's important to avoid this common pitfall.
We wish you a successful trading week on the Change App, and remember to keep these top 5 basic rules in mind.
Until next week!
