There are lots of different ways to start trading; from stocks and shares to cryptocurrencies. One of the favourites we find at Olsson Capital is CFD trading or Contract for Difference. But, what is this and what tips are there for beginners who want to try this approach?
CFD basics
With CFD trading, you can make money from both rising and falling markets, unlike some other types of trades. Another advantage is that you don’t need to directly own the asset that you are trading with, so you can trade Forex, stocks, commodities or even cryptocurrencies. It means you don’t need as much capital to start CFD trading as you would for other types of trades.
CFD traders ‘go long’ if they think a price will rise and ‘go short’ if they will the asset price will fall. The key to success with CFD trading is the creation and use of strategies that govern your trades.
Creating your strategy
At Olsson Capital, we have a range of educational resources available to help you start creating your strategy. Any experienced trader will say the same – never start trading without one. Otherwise, you will get through your capital and be out of the game before you can blink. But, what elements should you include in your strategy?
Controlling leverage
When you start with CFD trading, you need to learn about leverage. All strategies use a leveraged product and you need to have good control of this and understand it. It means you can start a trade with only a small percentage of the total value of the asset – for example, 10%. A 10% leverage would be shown as 10:1. Potentially, you can make a big profit from this, but it can also go the other way and, therefore, you need to always factor leverage into your trades and strategies.
Use stop losses
Another important strategy to master is stop losses. These are ways to literally stop your losses by placing a point on your trades where they cease. If you don’t use stop losses, you can easily lose all of your investment. But, if you make them too tight, you can find it difficult to make a profit. Using them and using them well is a key part of learning about CFD trading.
Create trading goals
As well as learning the basic CFD strategies, it is also advisable to start with a goal in mind. Goals need to be tough but also realistic. If you are opening positions with a low capital, for instance, don’t set a goal to be a millionaire within a few days because it is extremely unlikely. The best strategies have a goal and the best goals balance the tough with what is achievable.
To work towards goals, it is also a good idea to keep a trading journal to record what you are doing. This is an ideal document to track what worked and what didn’t and to assess both. It might be a physical journal or a digital one – the format doesn’t matter but the information recorded in it does.
Consider diversification
As you start to gain confidence in your trades, learning more about the market, you can consider diversifying into other types of assets. Master one before you do this but when you are ready, you can greatly increase the chances of making a profit by trying new assets and even new markets entirely. Olsson Capital also have a range of educational materials available to help you pick which market to delve in to next and a safe and secure platform to make your trades.