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Three top rules for trading CFDs

by , 28 September 2015

Once you decide to embark on trading contracts for difference (CFDs), chances are you're going to be very excited about what lies ahead.

But you can't let this excitement blur your judgement.

By sticking to the following rules for trading CFDs, you'll increase your chances of trading success…

CFD trading rule #1: Aim for modest gains

CFDs are geared trading instruments. This means a small movement in the underlying share price can translate into large profits.

Aim for modest gains. Once a trade is up, say 30%, close the trade and bank those gains. Don’t let greed overcome you and try to hold on for more.

Look to make 10% to 20% out of your trades. Smaller gains will add up to make bigger profits. By holding on for large gains, you risk wiping out any profit you’ve made.

Think about it this way. If you started off with R5,000 and made a monthly average return of 15% for a year, you’d turn that R5,000 into R26,700. That’s over five times your money.

CFD trading rule #2: Don’t have too many trades on at once

Avoid having too many trades on at the one time. Whilst you may want to try to boost your profit potential, it makes it difficult to manage and see what all your trades are doing.

When you start trading CFDs, only have one or two trades on at a time. Always keep some of your capital in cash and don’t tie it all up in trades.

CFD trading rule #3: Plan your trades

If you’re due to go on holiday soon or won’t be able to check your positions regularly due to some other reason, make sure you close all your positions and don’t enter any new ones.

You don’t know what could happen in your absence and it’s just a needless worry.

So there you have it. Three top rules for trading CFDs.

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Three top rules for trading CFDs
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