Making money through online share trading has become one of the most popular ways for people to grow their wealth. Among the most well-known ways of investing money in the stock markets over the short-term is with CFDs, or Contracts For Difference.
These financial products allow you to trade the price of a financial asset, without actually owning it. The biggest advantage of using CFDs while trading stocks is that you can benefit from any type of market movement, whether it’s bullish or bearish. Another advantage of trading CFDs is the leverage effect, which maximizes your market exposure
and increases your profits (as well as your losses).
Before you invest real money in CFD stocks, you should have a look at a trading guide to educate yourself and understand how CFD trading works.
Determine the kind of trader you are
To ensure that you trade in the best conditions, you also need to create an investment strategy that fits your trading style and your risk tolerance. For that, you should first determine the kind of trader you are.
Think about your personality, your availability and your investment horizon. Once you’ve determined your character traits and how much time you have to devote to trading, you can decide between becoming a scalper, a day trader, a swing trader, or a long term investor.
Decide which type of market analysis you want to use
You also need to decide what type of analysis to use to trade the markets. Broadly speaking, there are 2 main analysis techniques – technical analysis vs. fundamental analysis. While the first is solely based on the analysis of charts and the price action, the second mostly focuses on looking at economic factors , as well as financial statistics about companies.
Control your risk
Now that you know which type of trader you are, and the type of market analysis you want to employ, you need to control your risk to protect your trading capital. For that, you need to implement risk and money management techniques to your trading plan.
For instance, you should always set a risk/reward ratio according to your risk profile and your trading capital. Usually, traders use a risk/reward ratio of 1:2. This helps you set up stop-loss and take-profit orders. Another important rule is not to invest more than 2% of your trading capital on any single trade. Also, remember to take into consideration correlation and diversification to reduce your overall risk.
Have realistic trading goals
When it comes to their trading, newbies usually have unrealistic (or too general) goals, which is often counterproductive. Hoping to make a lot of money very quickly without spending a lot of time and efforts is vague and unrealistic (and often leads to undisciplined trading).
To be more successful in reaching your financial goals, you need to make them Specific, Measurable, Attainable, Relevant and Timely – or SMART. This method gives you a sense of direction to reach your goals faster.
Now you know what you have to do to become a profitable stock trader and reach your financial goals faster. Start thinking about what type of trader you want to be, which kind of market analysis you want to use and which kind of risk management rules you want to implement. From there, work on your trading plan and back-test it to adjust your
parameters if necessary.
Before you open a live trading account on a CFD broker, verify first that this broker is authorised and regulated. You should also have a look at the trading conditions and fees. Remember to use the demo account to get familiar with the trading platform, and be sure it offers all the trading and drawing tools you need to trade in the best trading conditions and become a profitable stock trader.