CFD Trading Tips

When trading CFDs – and indeed when participating in any type of trading – it’s wise to keep the following points in mind:

  • 01

    Keep Up with News and Market Trends

    To stay on top of your trading game it is key to keep up to date with global financial and geopolitical events. Such events are often capable of causing large market movements, and can often take traders by surprise.

    Although there is no certainty that a particular news release will affect a market in a specific way, knowledge of current events can prevent you from making basic trading errors, helping you to minimize losses.

    For example, elections have the ability to significantly impact the relative value of a country's currency. The political instability and uncertainty present during an election period often results in a greater volatility in the value of a country's currency.

    Forex traders often monitor pre-election polls to gain an idea of what outcome to expect – although, as the 2015 election in the UK showed, pre-election polls are not always accurate. A change in government can mean a change to a variety of different policies. For instance, a new approach to spending may influence a currency's value. In addition, political parties viewed as more focused on promoting economic growth may well enhance a currency's relative value. If a party seen as good for a region’s economic growth is at risk of losing its position in power, traders may sell that country’s currency, with the expectation of future economic decline.

  • 02

    Observing Pre-market Trading

    Pre-market trading is a period of trading activity that takes place before the official opening of the daily stock market each trading day. Companies often release their quarterly earnings figures outside of trading hours, and pre-market trading can give an early indication of how the markets may react to such announcements.

    Monitoring pre-market trading hours can help to anticipate market movement, giving an indication of what level the stock market may open at. It enables traders to set stop orders in place if an asset in question looks to be appreciating or depreciating in value. However, this approach must be used with a certain amount of caution: there is no guarantee that if a security’s market level moves in a certain direction during pre-market trading that it will continue in that same direction when the stock exchange opens. This is due to the greater volume of trading that occurs once the market officially opens for the day.

  • 03

    Approach ‘Ground Floors’ with Caution

    When the value of a security plummets, traders may be attracted to the idea of ‘getting in on the ground floor’ – purchasing that security at its low market price in the hope of generating profit in the future when its value increases. However, it is vital to think carefully before proceeding with a trade of this kind: there is no certainty that a stock or security will climb back up, just as there is no guarantee that the ‘ground floor’ level of that security will not decline further.

  • 04

    Keep Calm and Carry On: Trading and Emotions

    No trader has a 100% winning strategy – every trader is bound to make losses in some trades. When you start trading, incurring losses may bring about feelings of anxiety, fear or anger – and when dealing with volatile markets, it is easy to feel doubt. For this reason, it is important to trade when you are in the right mindset: anxiety can prevent you from making an obvious trade, and anger can cause you to make rash decisions in attempt to recoup losses.

    If you find yourself in a predicament, take a short break from trading until you feel calmer and ready to restart. Pausing and spending some time away from the trading platform will help to clear your mind and may help you unwise spur-of-the-moment trades.

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