Today, opportunities for online trading are vast. Global brokerage brands have recognized the potential of South Africa, and tailor their services to local needs. Contracts for difference are virtual derivatives linked to a broad range of assets. They allow you to speculate on prices for crude oil, gold, or even market indices without owning any physical assets. Here are a few important tips to help you get started.
Different Types of CFDs
Choose the instrument you understand best. As the value of a CFD is tied to its underlying asset, the latter must be studied closely. For instance, CFDs for crude oil are affected by oil prices, which in turn depend on geopolitical events.
Craft a Plan
Make your plan as detailed as possible, and stick to it. This will help to avoid impulsive mistakes. If your goals change, or the plan doesn’t seem to be effective, it may and should be reviewed. Include the following parameters, which will facilitate day-to-day trading:
● goals (for each trade and in the long run);
● trading style and market;
● optimal size of trades;
● strategy for entry;
● strategy for exit;
● risk management strategy.
The task may seem daunting. Take advantage of detailed guides on what is CFD trading from FXTM. The broker not only opens accounts and provides you with the software — it guarantees comprehensive support.
Trading is not a gamble: it must be based on objective analysis of the market. This is why acting on a hunch is not a viable strategy. Draw on the experience of pros and learn from their mistakes. Adopt proven ways to evaluate trends, identify regularities and the most profitable moments.
There is no universal recipe for monetary gains. When you trade CFDs, a lot relies on your mentality, ability to handle losses and attitude to risk. Even the most popular course of action is not bound to bring desired results all the time.
Keep a Journal
A journal makes it easier to review your existing strategy and see what works and what does not. Thus, note down all of your positions, including the entry and exit points, and why these were chosen. Add comments concerning your feelings or any other factors that influenced these trades. A journal will highlight your strengths and areas for improvement.
Control Your Emotions
In trading, emotions are your enemy. Decisions must be rational, rather than taken on the spur of the moment. Be self-aware at all times. If the market moves against you, it may be tempting to open a few more positions in hopes of making up for the loss. This is a failed mindset. Do not let market shocks disrupt your self-discipline.
Losses are inevitable, but they should not trigger impulsive trading. Instead of compensating for the failure, you may lose even more. Keep calm and be patient — you will make a profit again, but it is best to do it through a series of moderate gains, rather than a single trade. Hence, review your plan and wait for the next favourable moment.
Manage Your Risks and Capital
CFDs are often traded on margin, which means you do not have to afford the full contract value. You need to determine how much leverage to use on each position, and whether the potential gains outweigh the risks. The higher the volume — the higher the potential returns, as well as losses. It is a convenient feature, as you do not have to invest sizable capital — just put down the margin deposit. However, leverage should only be used by traders with prior experience.
Your plan must clearly specify the share of capital you can risk on every trade. For instance, some traders follow the 10-percent rule, which means they invest just 10% of their funds into a single trade. To keep the risks manageable, adjust the Stop Loss feature accordingly. Remember that slippage or market gaps may interfere.
How to Choose a Broker
It is vital to check that your provider is trustworthy. If you have a live trading account for Forex, your firm may allow you to access CFDs using the same software tools. Pay attention to the conditions:
● are the spreads fixed?
● are the trading tools convenient?
● is the customer service efficient?
Traders in South Africa should focus on licensed brokers with proven experience in the field — preferably, international brands. These are subject to oversight by reputable regulatory entities like the CySEC.