For newcomers, CFD’s and spread betting can be a challenging way to invest. While they are more complicated than traditional stocks and shares, they can often be more rewarding. Although CFD’s used to be something that you could only grade through a broker, the emergence of online stock websites like CMC markets means that more or less anyone can now give it a go and take the plunge into the world of CFD trading. There are a few things to learn, but if you get it right, you can be in for a very rewarding experience.
Tip 1 – Only invest what you can afford to lose
This tip is something that will be useful to anyone looking to invest in any kind of instruments. It may sound obvious, but so many people fall into the trap of thinking they will have a ‘win’ if they just keep investing, but this is not always the case, especially for beginners. The trick is to set aside a lump sum or an amount per month you can invest. Be strict with yourself, even if you make a loss.
Tip 2 – Spread your risk
If you are just starting out, and you have some really exceptional fortune, it can be tempting to just completely run with this trade and put everything you have into it. The risk will not seem great if they trade continuously makes money, but not spreading their risk is one of the biggest mistake that new traders make. If you put in a large percentage of capital into one trade, then you run the risk of losing everything in one go.
Traders who spread their risk and invest small percentages of their capital are a lot more profitable long term. CFDs can be an incredibly volatile market, and the more you can spread your risk the better. Remember, if you are going to invest most of your capital into one thing, you are more or a gambler than a trader, and this is a risky way to manage a portfolio.
Tip 3 – do not keep funding losing trades
Many traders work on gut feeling. Unfortunately, while this can sometimes work, from a business perspective it is not always the best way. If you have a ‘feeling’ about a trade, it can be easy to want to keep ploughing money into it, but you could easily end up putting all of your money into a CFD that is destined to lose.
Try and refrain from putting more and more money in losing trades. It is a lot better to cut your losses and move on than to keep investing in a CFD losing money substantially.
Tip 4 – use stop losses to also minimise risk
No matter how you are trading CFD’s,you will always have the option to put stop losses on your account. If you trade without setting up stop losses, you can leave yourself ope to an entire trade being wiped out, just because you couldn’t check your investments online. However if you set them too tight, you may also end up losing out. Do some research on your chosen trade before you set your stop losses.
Tip 5 – look for an online trader that lets you use an app
Part of the fun of trading is being able to monitor your investments all day. CFD markets can move incredibly quickly, so it is likely that you will want to log on and check investments where possible. Due to restraints like work, family time etc, it can be hard to get a chance to do this via a desktop or laptop. This is why you should search for an online trading company that have a mobile phone app.
As well as setting up stop losses, being able to monitor your investments on the go will always help reduce risk. Most trading apps not only let you monitor what is going on, but they also actually let you place trades and change around stop losses and settings. Another great trick mobile phone trading apps have is to send you a notification if your investment is getting near to a stop loss, or just low in general.