If you’ve newly started to trade CFD, it’s essential to remember some points. These four points will help you in understanding what is CFD trading
1. Stay in Touch with Market News and Trends
To be ahead in the trading game, it’s important to remain up-to-date about what’s going on in the world in the fields of finance, geography, and politics. The movements in these fields have a great power to bring about significant movements in the CFD market and often can shock traders.
While there is no guarantee that a specific news release will influence a market in a particular way, being informed about current events can stop you from making fundamental trading errors and thereby can minimize your loss.
For instance, elections have a great power to impact the value of the currency of a country. The political instability during an election can often lead to a higher volatility in the value of the country’s currency.
2. Observe Pre-Market Trading
Pre-market trading refers to the period of trading activity before the official opening of the stock market every trading day. Businesses usually announce their quarterly earnings outside of trading hours and therefore pre-market trading can provide an early sign of how markets may respond to such releases.
Since watching on pre-market trading hours can help to get an idea of market movements, traders can set stop orders if a particular asset is expected to appreciate or depreciate in value.
However, you should be careful because it’s not guaranteed that a security is moving in a certain direction in pre-market trading, it will keep moving in the same direction when the stock exchange opens. This is because of the greater amount of trading occurring upon opening of the market for the day.
3. Be Cautious with Low-priced Security
When the value of a security falls, traders are often tempted to buy it with an idea of getting profit in the future when its value rises. However, this should be done very carefully, because there is no guarantee that a security or stock will definitely climb up again, just as there is no guarantee that the value of the security will not reduce further.
4. Keep Calm
Every trader is bound to suffer losses some time or the other in their trading career. No trader has ever got a 100% winning strategy. When you suffer losses, it’s natural to get feelings of fear, anxiety and even anger. And when it’s about volatile markets, it’s easy to have a doubt. Remember that feelings of anxiety, fear, anger etc. can prevent you from making right decisions. If you are caught with these emotions, take a break from trading until you feel calm again and only then restart. This way your mind will be clear and you are more likely to see things as they are and not in your prejudiced perception.
Remember these points to make the most of CFD trading and get maximum success.