CFD Trader Insights
CFD trading, otherwise known as Contracts For Difference, is a little bit like binary options trading in the central concept. It’s all about making a prediction on where you think an asset will go during a particular trading period. So, like binary options trading, you’re not actually purchasing an asset and beholden to the traditional “buy low, sell high” concept that is required to make a profit. With CFD trading, it is more important for your prediction to be right than it is for the actual market performance to be good.
This means that regardless of whether a stock, commodity or currency is doing well or doing poorly, as long as you made a trade correctly predicting that performance, YOU are doing well. Even if the American dollar is has jumped off a financial cliff and is hurting the American economy, if you made a trade predicting this would happen, you can still profit from even disastrous market performance.
However, in order to get good, consistent results with CFD trading, and actually start reliably profiting, you can’t just take guesses at how the market is going to work. In binary options trading this is already a bad idea because the trade will tell you ahead of time how much you stand to lose if your trade falls through. With CFDs, you don’t even have that safety net. Whatever that difference is, regardless of how large, you will have to pay it out of your own pocket.
With that in mind, it’s better to approach CFD trading with a few tips from the industry that can better help you to prepare for what can be a very rewarding, but unpredictable journey.
Have A Realistic Plan, With Realistic Goals
This is an incredibly important cornerstone of eventually succeeding at CFD trading. You may hear and read stories about amazing overnight successes, but understand that these are more the exception rather than the rule. If CFD trading was that consistently easy to reap a huge fortune in a short amount of time for everyone, then it would be the dominant form of trading, not traditional stock or commodity markets.
If you go into CFD trading thinking, “I have $10000 now, and I want that to be $500,000 by the end of the week,” then CFD trading is probably not for you. That’s not to stay that a windfall like that can’t occur, but to rely on an outlier event rather than something more statistically probable is setting yourself up for disappointment, and likely end up with you quitting out of CFD trading entirely, feeling cheated and betrayed.
Look at your finances, look at the average amounts of profit that people make at the amounts you’re willing to invest in the areas of interest you have. Base your goals around these, and then exercise the discipline to stick to this plan.
Be Prepared To Lose
As with any form of financial trading, there is always the possibility that you may make a bad trade and lose money. You must absolutely be prepared to face this possibility, especially since the amount that you may potentially lose is entirely out of your control. This doesn’t mean that you should go into every trade expecting defeat and a loss. It does mean, however, that you should be prepared for a loss, at some point, and you should be able to deal with it.
If you find the idea of losing on a trade and paying even more out of your own pocket as a consequence is too much to tolerate, you probably shouldn’t get involved with CFD trading and should stick with something less volatile, like binary options trading. It’s true that you can get sizable, unexpected profits through CFD trading, but that comes with a big risk that works both ways. Only people who are prepared to lose big can win big.
Prepare To Exploit Opportunities
In the same way that you should have some state of preparedness for losing, this also applies to profiting. In most instances, CFD trading will be about making reasonable, calculated risks for a predictable amount of profit. But, as with weather, the market can get swept up in unusual financial events that can, for a short period of time, prove to be quite a windfall for people that have the resources to take advantage of this.
On average this type of financial event may happen about once a year, and usually only presents a big opportunity for profit for a few weeks, if that. Some traders keep funding in reserve for these unexpected intervals. It may come as a result of an unforeseen economic event that affects a country’s entire economy, or it may simply be a surprise announcement from a company that managed to keep a secret development under wraps. When it happens, however, it can create a consistent, profitable trend, and if you have the finances to ride this wave, it can be very productive.
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