Tips to Help Starting CFD Trading

Learning to trade DMA CFDs is often quite daunting at first, with new traders having to master the trading platforms offered by their DMA CFD providers and of course developing trading plans. Trading can be fun and rewarding if you take the time at the start to do your homework, below are a few important tips to help beginner traders get started.

1. Develop a trading plan

A common mistake new trader’s make is that they use an inappropriate
trading strategy, or worse still, they have got no plan at all.
Adopting a trading strategy and using it on a consistent basis, provides
a framework of discipline. It is also likely that this is going to
deliver better results than a hap-hazard approach or using a frequently
changing number of approaches. Care should be taken when deciding on a
strategy. It would be a mistake to attempt trading a technique dependent
on five-minute charts if you’re unable to access your trading platform
for much of the trading day. Likewise, it would be a mistake to use a
strategy based on monthly charts if your trading horizon is calculated
in days or weeks.

Certain traders tend to believe that a more
complex system is usually a better system. They build techniques that
employ huge numbers of inputs and require tremendously complex
calculations and algorithms. They regularly produce graphs which are so
heavily covered in indicators that it becomes difficult to spot the
price action. While a few of these complicated systems certainly are
effective, the greater the number of inputs and calculations they need,
the more potential there is for something to go wrong. In some ways, a
simple approach is usually superior (and easier to stick to with
confidence) than a more complicated approach.

One of many
strategies employed by a lot of traders is the short trade. This is
where a trader sells a CFD that they don’t currently hold in
anticipation of buying it back again at a cheaper price in the future.
While it can be argued that there is no difference between taking a long
position or a short position, a short position might not be suitable
for a conservative trader. In theory, a short position holds much
greater risk than a long position, this is because of the difference in
the maximum possible downside for each type of trade. When holding a
long CFD position, the worst possible move could be for the CFD to fall
to zero and become worthless. For a short position, where losses will
mount as prices rise, the maximum loss is limitless. While holding a
short CFD position over an equity with a skyrocketing price is unlikely,
it is possible. It would be a mistake for a very conservative trader to
trade on the short side, especially without a stop-loss order in place.

2. Learn how to use your trading platform

It can sometimes be a steep learning curve when trading on a new
platform however once you have spent the time and effort and overcome
any lingering fears of technology you’ll realise that this is important
if you are to be a successful online trader. It is no good waiting until
you have open positions and the markets start moving before you
determine how to put on or alter a stop-loss or take-profit order. You
must ‘know’ how to manoeuvre around the platform and open, close or
adjust orders without needing to look up the platform user guide.

You
also need to plan for more extreme situations. Think about what might
occur if your internet connection were to break down or if your PC
became infected with a virus and wasn’t operating at its peak. As a
preventive measure, it is wise to write down your CFD provider’s
telephone number near your PC. Additionally it is good practice to keep a
list of your open positions so that you know what your exposure is.

3. Take accountability for your trades

Most traders closely keep an eye on their open positions but there
are those that make the mistake of not doing so. By frequently checking
on your open positions you’ll know what your overall exposure to the
market is and whether or not you’re in profit or loss situation.

As
well as trading mistakes, some traders simply forget that they have
placed certain orders, or because they do not understand the platform
they find that they have by accident placed orders without meaning to do
so. It’s best to discover these errors as fast as possible by keeping
track of your open positions. Mistakes made when entering trades tend to
be more frequent than you might think. Traders frequently hit buy
instead of sell (or vice versa) or enter the incorrect quantity or even
the wrong ticker symbol. These are simple errors that tend to be put
down to having a “fat finger”. However, if you take your trading
seriously, you need to make sure that you exercise the proper amount of
care.

CFD Trading can easily be very rewarding and enjoyable if
you spend some time at the start educating yourself and learning the
tools of your trade. Naturally it is always important to keep in mind
that trading DMA CFDs can be risky, however the tips outlined above will
assist you in managing risk and will help you to avoid many of the
mistakes traders make when starting out.