Placing CFD trades can be exciting and nerve-wracking among new traders. After all, this is a new experience and everyone feels nervous and excited during their first times. CFD is versatile enough to let traders trade and gain even with falling markets, utilize leverage and gain access to a wide range of instruments in trading, and so much more.
There are few things that you should learn before trading CFDs.
Choosing a market
With CFD trading, you can choose what market you want to trade on as it is not close to the Forex market only. There are thousands of markets that you can trade on like indices, shares, currencies, bonds, commodities, interest rates and so much more. This allows you to get exposure to major markets including New Zealand, UK, the US, Australia, Europe, and Australia. With all of these choices, you can’t simply randomly pick an asset. You need to find the most suitable trading opportunity for you. There is a research tool available in MetaTrader 4 (MT4) that lets you identify the type of opportunity that’s best suited for your trading style.
Deciding whether to buy or to sell
After choosing a market, the next thing you have to do is to go long (buy) or go short (sell. And you can only decide on this matter after knowing the current market price. This is made possible if you bring up a trading ticket into your trading platform.
There are two prices in the CFD market, the sell price or the bid and the buy price or the offer. The difference between these two prices is called a spread. The basis for your CFD price is your underlying instrument. If you think that that market price will go up over time then you should choose to go long but if you are predicting that the market will fall, then you do the opposite move, to go short.
Selecting the trade size
There is an option to pick the number of CFDs that you can trade. With equity trades, 1 CFD is equal to 1 share. When you trade commodities, indices, bonds, interest rates, and forex, the value of each CFD depends on the instrument. At the information sheet on your market, you will see the number you are ticking on by referring to the ‘tick value’.
Adding a stop loss
This step is very important especially to new traders. Your risk management strategy matters to be successful in forex trading. And when it comes to risk management, the first thing that comes to mind is employing the stop loss. The most important risk management technique that you can use in Forex trading is to employ a stop loss that will close your trades automatically when it reaches a specific level before you lose so much in the market.
Instruction is given by the trader as to when the stop loss should get triggered. As its name suggests, it minimizes losses and minimizes the risk in CFD Trading.