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CFD Trading Definition

Considering trading CFD’s? A CFD is a versatile derivative that offers good potential for higher returns. However, with this potential comes higher risk. There are some fundamental aspects you should be aware of before jumping into CFD trading. Manage your risk and plan your trading – take a look at these points and tips.

Ten most important things about CFD trading

No matter what financial instrument you are trading, you need to plan your trades carefully before putting capital at risk. When you trade CFDs, the leverage component of these derivatives means that you need to be even more careful.

In many ways, the top ten things to consider when engaging to CFD trading relate to risk management and sensible planning. While there are various trading methods that can be developed to help you work out how and why you will place a trade, these tips are fundamental to all successful traders.

  1. Keep your risk levels conservative by using stop losses and sensibly sized positions.
  2. Realize that you aren’t going to make a fortune overnight by using leverage. Instead, try to move yourself forward gradually with a well thought out trading plan.
  3. Pay close attention to managing your existing trades — don’t just look for new trades.
  4. Work hard on building a single trading method that is effective and suitable for you before trying or adding a new one.
  5. If you change your plan, do so step by step instead of all in one go — this way you can much better determine what’s going well and what’s not.
  6. Don’t make your decision about which provider to use based on which one provides the lowest margin requirement — you generally don’t want to be so highly leveraged that this becomes a huge issue.
  7. No matter how experienced you are with other products, start very small with CFD positions so that you don’t face unpleasant surprises.
  8. Be aware of the risk that you’re exposed to — both on individual positions and in your portfolio as a whole.
  9. Leveraged trading shouldn’t make up the majority of your investment portfolio and nor should it be done using money that you need to live on.
  10. Don’t search for the perfect method that will always be correct because it doesn’t exist — instead focus on keeping your losses small and your methods consistent.
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