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Strategies to boost confidence at trading CFDs

Remaining calm under pressure and good risk management are some of the keys to improving performance during market volatility

Remaining calm under pressure is important in optimising trading performance. PHOTO: GETTY IMAGES

Financial markets have faced grave disruptions during the Covid-19 pandemic, derailing the performance of many long-term investments and leaving investors high and dry.

As the pandemic continues to play out, markets remain highly unpredictable and volatile. But for those who trade Contracts for Differences (CFDs), market swings can be a potential source of opportunity.

A CFD is a derivative product with an underlying asset such as shares, foreign exchange, and even commodities like gold, oil and sugar.

When traders buy a CFD, they are entering into a contract with a seller to pay the difference in the asset’s price at the start and at the close of the trade. CFD traders are thus concerned with the price movement of the underlying asset, with dramatic swings having the most profit potential.

In order to profit from a CFD trade, a trader must correctly predict whether the price of the underlying asset will rise or fall. 

A trader who predicts a downward price movement will “go short”, opening a CFD position that enables him or her to profit from the falling price of the underlying asset.

On the other hand, if the trader believes the underlying asset’s price will rise, he or she will “go long” by placing a trade which can profit from the upswing in value.

CFDs offer traders a way to capitalise on market volatility, but trading them can be fast-paced and requires practice. Here are five tips that can help you become a more profitable CFD trader.

1. Don’t let your emotions get the better of you

Trading CFDs can be an emotional roller coaster ride. The most profitable trades tend to be made in turbulent markets which, due to their unpredictability, can be nail-biting to monitor. In addition, many CFD traders opt to concentrate on short-term price movements, making their trades extremely fast-paced.

The best traders are able to remain calm under pressure, basing their decisions on strategy and objectivity rather than knee-jerk reactions.

Award-winning brokerage City Index offers an exclusive tool that can help traders learn more about their psychological responses to trading situations.

The one-of-a-kind feature, called Performance Analytics, uses cutting-edge technology to analyse traders’ past performance, identify their strengths and weaknesses, and present the results in the form of easy-to-understand statistics.

With the help of Performance Analytics, traders gain insight into the characteristics of trades they perform most strongly in, as well as the kinds of trades they tend to struggle with, and thus come to a better understanding of how to overcome their psychological state to improve performance.

2. Limit your risk

Trading CFDs can be risky, so mastering effective risk management techniques is essential. This can be done through a platform like City Index’s, which offers the use of risk management tools such as guaranteed stop loss orders and knockout options.

Guaranteed stop loss orders can be used to limit risk to a level the trader is comfortable with by automatically closing positions once a certain price has been reached.

Knockout options enable traders to set a knock-out level corresponding to the maximum loss they are willing to incur. If the market does not move in the trader’s favour, the trade will close automatically once the knock-out level is reached. This offers traders the potential for unlimited profits while limiting the downsides.

Trading on leverage can also be risky as traders’ losses can extend beyond their cash deposits. Traders should be cognisant of the maximum amount they are willing to lose and moderate their margin accordingly. Beginners, in particular, should consider being conservative in their use of leverage.

3. Be alert to new opportunities

Due to the fast-paced nature of CFD trading, successful traders need to be on the alert for new opportunities, which can come and go in a matter of hours.

City Index’s trading platform helps traders uncover potential trading opportunities, identified using a sophisticated machine learning-assisted algorithm. Through a feature called SMART Signals, traders are notified of short-term trading opportunities, with each signal lasting for a duration of 4 to 12 hours.

Traders can act swiftly through SMART Signals’ auto-generated order tickets, which set up trades instantly once a quantity has been entered.

Staying up to date on market news is also essential to becoming an effective trader. City Index users enjoy frequent updates, sent directly to their inboxes, from teams of market analysts in Asian, European and American markets.

4. Practise, practise, practise

Like any other skill, CFD trading can be learnt through diligent study and practice. Practising on a demo account can help traders hone their strategies without incurring losses.

Set up a CFD demo account with City Index and receive 12 weeks’ unlimited access to the company’s trading platform, as well as $20,000 worth of virtual cash to practise with. 

5. Choose a good brokerage and trading platform

Your brokerage and trading platform can make or break your trading experience and should thus be chosen with care.

Leading brokerage City Index is part of StoneX Group, a Fortune 100 company that is publicly listed on Nasdaq. The company’s CFD trading platform serves more than 500,000 retail users around the world.

In 2021, The City Index trading platform won Best Platform for the Active Trader in the ADVFN International Finance Awards 2021 as well as Best Professional Trading Platform and Best CFD Provider in the Online Personal Wealth Awards 2021.

City Index harnesses cutting-edge technology to offer powerful features like Performance Analytics and SMART Signals, and also regularly updates its platform and mobile application to give users a superior trading experience with precise trade execution and advanced risk management tools.

The company offers a straightforward and transparent pricing and charge structure, making it easy for users to see at a glance what costs they will incur. 

This Chinese New Year, City Index is kicking off a new promotion – Trade Free for a Year. Every month, traders can get back up to $1,000 of their trading costs in the form of rebates, deposited in cash to their accounts, giving each user the chance to receive up to $12,000 worth of cash rebates in a year. This is in addition to the numerous other rewards and benefits City Index account holders can enjoy.

Take the first step on your CFD trading journey by registering for a City Index account today.

 

Disclaimer:

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement” in cityindex.com.sg. This advertisement has not been reviewed by the Monetary Authority of Singapore.

 

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