Is trading CFD for a living akin to gambling away your money? Not at all, with a right mental attitude and research, anyone can benefit highly from this trade.
“Man losses $500,000 trading CFDs!”. These are part of the search results you are likely to encounter when searching for information on trading in CFDs. CFDs are the new investment kids on the block, their origin dating back to the 90s in London. They are highly misunderstood and are often viewed with suspicion.
A CFD is an acronym for a contract for difference, a flexible trading vehicle that in many ways resembles forex trading. The significant differences between trading in CFDs and forex trading would be the assets that each investment type offers to traders.
Is there profit potential in trading in CFDs?
With CFDs, you can invest in a wide range of markets including energy, metals or indices whereby forex trading is tied to currency trading. CFDs have gained massive popularity due to their flexibility of trade and minimal trading costs. So why are CFDs viewed with such suspicion? Are they really “a way of borrowing to gamble” like many internet blogs love to portray them as? Can you ? More information here.
The answer is yes, but there are specific rules of this game that every trader has to play by to maximize profit while minimizing risk. Play by the rules, and you will be making an extra dollar at the touch of a button from the comfort of your own home. What’s more? The buzz that comes from knowing that you can speculate right is out of this world.
Simple rules for trading CFD for a living profitably
Preserve your capital
To quote Marcel Link author of “Forget about making money; try as hard as possible not to lose any. Each dollar you have is precious so fight as hard as possible to keep it in your pocket and out of someone else’s”. It is estimated that 90% of traders lose their capital within half a year of day trading. If most investors trading CFD for a living adopted this rule, there would be fewer losses and more investors earning a profit by trading CFD for a living. Use CFD stops to minimize your losses too.
Greed for profits will lead to losses
A staggering are usually on the red within the first six months trading.And while misinformation and broker scams are part of the problem, a lot of these losses arise when CFD traders are too obsessive over profit making. You must set for yourself realistic targets and goals so that you do not lose your hard earned money through flippant and overconfident trading. Individuals trading CFD for a living have to be aware of the risk and reward trade-off angle.
Control your leverage
CFD leverage can help blow your profits through the roof and your losses too. Leverage is perfect during good trading, and often the trader is lead to increase positions with their winnings continually. In a volatile market, as CFD is, this is ill-advised because a loss is always lurking around the corner. Keep your leverage small at the beginning and always ensure that your exposure is lower than your capital.