How to Trade CFDs

A smart trading strategy involves preparation. Follow these five steps to opening your first CFD trade.

Step 1: Select your market

The first step is to choose your trading market and symbol. Will you trade CFDs on silver, speculate on the value of wheat or follow the price of a major index? Use your free resources and research widely to gain an understanding of the markets you intend to trade in. Different financial instrument prices will be more or less volatile than others and be affected by unique dynamics including supply and demand, so it’s important to have a general understanding of the relevant factors.

Step 2: Choose the direction of your CFD trade

CFDs allow you to speculate on both upward and downward moving prices, so you’ll need to identify which direction you think the market will be moving in next. If you think the price will increase you will want to buy, or go long. If you believe the price will decrease then you will aim to sell, or go short. Here’s where your research and technical analysis can be of benefit.

Step 3: Choose your entry and exit levels

Before any trade, it’s a wise move to choose your entry and exit points so your decisions will be based on cool and calm logic. The last thing to do is change the exit point after you’ve entered the trade, as doubt could see you exiting too early or too late. Develop your CFD trading strategy and put tools such as support and resistance levels to good use in order to set your entry and exit points. You can then set take profit and stop loss orders to automatically close out trades if they go above or below those levels.

Step 4: Choose your trade size

Risk management is an important part of any CFD trade, and one of the most effective ways to control your potential losses is to choose appropriately sized trades for your risk profile, trading instruments and account size. Many traders will start small and build the size of their trades as they become more experienced. The same may apply for the amount of leverage applied.

Step 5: Enter and monitor the trade

Here’s where the action happens. If you have decided on your symbol, your entry and exit points and your trade size, then you can execute your trade. You can use your mobile trading platform to monitor the position as it moves towards either of your exit points. The hardest part can be to avoid exiting too early, but if you have done your research and set your exit points effectively you’ll find it easier to hold your nerve and close the trade at an appropriate time.

Ready to begin trading? Begin with a free demo account or register for your live account now.