If a person allocated their money into CFD trading, it is uncommon for them not to take it seriously. Even if there are lots of new traders who wants a piece of the financial market, they shouldn't be afraid to learn how to trade CFDs. Unlike other markets, trading Contracts For Difference have unlimited amount of resources and tools in order for them to gain enough knowledge. And by maximizing the use of demo accounts, mentoring services, online courses and other resources, new traders will be able to learn quickly. But the real question is, where should you start. Here are steps you can use to get your way around trading market.
1. Finding the right broker
The first and obvious step new traders must take to learning how to trade CFDs is choosing the right brokerage firm - https://www.independentinvestor.com/cfd/brokers/. Some brokers provide larger markets than the others, some have tighter spreads. And it would best to look at different brokerage firms because each have their own disadvantages and advantages and even offer different services. And the best way to ensure that your money is safe or if you can appeal if the firm becomes bankrupt, you should look for a regulated firm in one or two major countries at the least. Also make sure of the legitimacy of the firm so as not to waste your time.
2. Have a Trial run
After finding a suitable brokerage firm, the next step to take is trying out the system through a demo account. This perhaps is one of the best thing about CFD trading because unlike other markets, demo accounts are available for traders to use.This can help new traders learn how to trade Contracts For Difference with the use of a trading platform and also help them decide if it is suitable to their needs. A typical demo account is the same as a live account, their only difference is the use of real money. And not only does a demo account help in understanding the use of the trading platform, it also allows traders to test their plans and strategies.
3. Educate yourself
Before you start trading, it is very important that you realize that CFD trading https://www.independentinvestor.com/cfd/ is not about doing guesswork and trading on impulse. It is advisable that when you begin to trade CFD's that you can defend the transactions you make. The best way to do it is by doing research and educating yourself. And since the information is available to you through the internet, you can easily find the resources you will need. And even if you have gained enough knowledge about trading, staying up to date will save you from making bad trades and losses.
4. Stick to what works
It's true that not all traders are the same. Each trader has their own style to develop when learning how to trade CFD's. And it doesn't matter if you use fundamental or technical analysis, the important thing is finding what works for you and stick to it and gain more profits instead of losses.
While learning how to trade CFD's is a bit daunting, especially for beginners, but the truth is, it can be easy since there are lots of resources that can help you become successful. Just keep in mind that before using real money, you must learn everything you need and have come up with strategies and plans.
How to Place CFD Trading Stops
This is the most basic stop loss - placing a stop a given distance from your entry price. However, having a stop like this in a liquid market, doesn't make much sense. Typically, the more liquid the market is, the farther out you place your stop loss, as your currency pair can have a price spike or dip before returning to its trend, and you do not need your CFD trade to close before the market turns in your favor.
Average true range method
With this method, the distance of the stop from your opening position is decided by the percentage of the average true range (ATR). ATR measures the volatility of a financial instrument over a specific - interval a day's trading range is simply from its high to low, while the true range extends this to the prior day's final price, if that was outside the present day's range.
The true range is the largest of:
• The most recent period's highs less the most recent period's low
• The most recent period's high less the prior close
• The most recent period's low less the prior close
The most typical ATR is Fourteen, with a higher one indicating a rather more volatile market and a lower one indicating a less unstable market. By utilizing a proportion of the ATR you make sure that your stop changes with changing conditions in the market.
For instance, if the NZD/JPY typical daily range is around 100 - 150, a day trader could utilize a Ten percent ATR stop. This would place the stop between 10 and 15pips from the opening price.
In contrast, an investor, who keeps positions open from several days to several weeks, would set a stop that's further away presumably Fifty percent or One hundred percent of the ATR. In the case of the NZD this would've been100 - 150pips.
Several day high / low
For a long position, a trader would place a stop at a predetermined day's low,eg the two-day low. Likewise, for a short position, a trader would place a stop at a pre-set day's high.
This can also work as a trailing stop in the case of a stop set at the two-day low, every day it'd be changed to the new two-day low.
Though this technique is straightforward, it does open traders up to plenty of risk, particularly if you're entering a CFD trade shortly after a day with an enormous range. Long term traders may need to use weeks or months to ascertain their stop placements, which is again dangerous, but can appear sensible for someone that trades just one or two times a year.
Below/Above price levels
Some traders choose to place stops on closes above or below certain price levels. Although this deters you from being accidentally closed out of the market, it does mean that you risk the market breaking out above or below your price level, leading to a large loss, so it is not advisable to use this kind of stop around important news announcements and other unstable periods.
The indicator stop is a trailing stop method where you wait for an indicator to signal your exit from a CFD trade.
Momentum trading divergence is an example of this. When the cost of an asset makes a new low while an indicator begins to rise, or vice versa, this is commonly known as divergence. In the case of momentum trading divergence, a measure of momentum, for example Price Rate of Change, RSI and Stochastic, can be employed as an indicator.
If the asset reaches a new high as momentum is beginning to fall, this is a warning that the market may shortly fall and traders who were going long should begin planning their exit.
Choosing your stops
The same stops don't suit everybody, so assess your CFD trading style and your strengths and weaknesses before choosing which is best for you. If you have difficulty choosing when to leave a CFD trade, then an indicator stop may suit you. Or, if you find you keep getting closed out of the market before it turns in your favor, an ATR % stop could be best for you.
Remember that CFDs and forex are geared products and may lead to losses that surpass your first deposit. CFD trading might not be suitable for everyone, so please make sure you understand the risks involved.