Is Learning CFDs Hard?

Many people consider CFD trading to be hard, mainly because of the volatility of markets which can lead to substantial losses if not managed properly. In this article, we’ll discuss some of the reasons why CFD trading may be hard for some traders.

Key reasons why CFD trading may be hard

CFDs are highly leveraged

CFDs are highly leveraged, which means traders can borrow money from a broker to open larger positions with a smaller initial deposit. This increases trading opportunities and the potential for higher returns. However, if trades move in the opposite direction, leverage can also lead to huge losses.

The challenge is in managing leverage properly to avoid losing all your capital. This requires constant monitoring of the market and price movements, along with effective risk management strategies to protect your funds. Trading can be highly volatile, with rapid and unexpected price changes in underlying assets.

Popular risk management tools in CFD trading include stop-loss and take-profit orders. Trailing stops and guaranteed stops can also be used. These orders are triggered when an asset reaches a particular price or threshold, and the aim is to minimise the risk of large losses in a particular position.

Market volatility

In CFD trading, traders speculate on the change in value of underlying assets, predicting whether prices will go up or down. The underlying assets differ from one CFD to another, providing access to a wide range of financial markets. However, managing the volatilities and complexities of each financial market can be challenging, especially for beginners. Understanding the factors that influence the markets is very important.

There are many factors that cause market volatility, and they include central bank announcements, economic releases, market or investor sentiment, interest or inflation rates, etc. As well as understanding how these factors influence the markets, it is essential to monitor them closely. This means following the news and using an economic calendar to track events, news and indicators to better plan your CFD trades.

Technical and fundamental analysis

Analysis is a challenging aspect of CFD trading as not everyone finds it easy. However, analysis is an important part of making informed trading decisions. While beginners might find analysis hard in the beginning, learning this skill is essential for trading success.

Technische analyse

Technische analyse involves reading and assessing price charts to identify specific patterns or market trends. Traders use technical indicators usually provided by the trading platform they choose.

Popular indicators include Bollinger Bands, RSI (Relative Strength Index), MA (Moving Average), EMA (Exponential Moving Average, Fibonacci (Retracements), MACD (Moving Average Convergence Divergence), Stoch RSI (Stochastics), Support and Resistance, Ichimoku Clouds, and many others.

Fundamentele analyse

Fundamentele analyse examines the intrinsic value of the underlying asset. This involves analysing financial statements, earnings reports, P&L etc. It also considers economic news, central bank announcements, and other qualitative and quantitative data.

Both types of analysis are important and contribute to executing trades effectively. Fundamental analysis is particularly useful for long-term investments while technical analysis is crucial for making quick trading decisions. This is especially important in CFD trading where quick decision-making is essential. 

De psychologie van het handelen

CFD trading is fast-moving, so decisions need to be made in minutes or even seconds. CFD trading is challenging, and constant monitoring 24/7 can be very stressful on your overall psychology. Quick thinking and reacting to sudden market movements or price fluctuations can be a challenge.

Emotioneel handelen, often driven by fear, anxiety, impulsive thinking, and sometimes greed, can lead to unfavourable trading outcomes. Managing these emotions is crucial to success. But how do you develop a robust trading psychology to deal with the challenges of CFD trading?

• Awareness of your emotions is essential. Identifying your triggers is the first step towards managing them effectively.
• Integrate risk management tools into your CFD trading strategy to reduce the stress caused by the risk of losing your entire funds.
• Keep a trading journal. Document your trades and note down the reasons for your trading decisions. Over time, you’ll have a historical record of your trading behaviour, allowing you to evaluate patterns and make necessary changes.
• Don’t overtrade. While FOMO (fear of missing out) is real, don’t allow it to lead to financial losses. Base your trades on proper analysis en education but remember to take breaks when necessary. Move away from your screen, relax, and resume trading when you’re calm and focused.

Continuous learning

Continuous learning is another challenging aspect of CFD trading. Stay informed and continuously update your knowledge and skills with the latest insights related to CFD trading. By doing this, you’re likely to make more informed trading decisions based on reliable information rather than influenced by your emotions on a particular day.

Ongoing learning includes blogs, e-books, guides, or videos, and many of these resources are available for free online. Additionally, podcasts, webinars and seminars are popular methods of learning about CFD trading.

There are also online community forums which provide valuable opportunities to connect with traders globally, exchange ideas, share strategies, and gain valuable tips, etc.

Another valuable resource is a demo trading account, which offers a simulated trading environment where you can practise using virtual funds. A demo account allows you to learn more about real market conditions, learn technical and fundamental analysis, and gain a realistic preview of live trading without risking your own money. By staying informed and gaining practical experience, you’ll improve your ability to manage stressful situations in CFD trading and make decisions based on knowledge rather than emotion or speculation.

Choosing the right CFD broker

Selecting the right CFD broker is another aspect of CFD trading that could be considered challenging. With so many brokers available, it’s vital to find one committed to helping you reach your financial goals. Here’s how the right broker can help you:

• Offering educational resources such as videos, podcasts, blogs, webinars, seminars, e-books, etc. to help you enhance your skills.
• Providing flexible trading conditions, including competitive spreads, multiple trading accounts to choose from, fast trade execution, and quick withdrawals and deposits.
• A dedicated multilingual customer support team will help you in your preferred language.
• Offering a wide range of assets, allowing you to trade according to your preferences.
• Providing an innovative and user-friendly trading platform designed to meet the needs of both beginner and experienced traders.

In summary

While CFD trading can be difficult, thorough planning is crucial. Before starting CFD trading, you should develop a trading plan that reflects your current level of trading experience.

This plan should be tailored to your unique trading and educational goals, as well as your budget and risk tolerance.

Implementing effective risk management techniques is important to protect your capital. Trade carefully and logically, steering clear of impulsive decisions.

Trade with IronFX

IronFX is a trusted and reliable CFD broker that provides access to an extensive suite of tools and resources, aimed at optimising trading success. IronFX is considered one of the leading forex brokers, providing excellent 24/5 multilingual support, advanced trading platforms tailored to diverse trading needs, and access to 500+ financial instruments across forex, metalen, aandelen, futurescontracten, indices, en commodities.

The broker also offers flexible leverage, competitive spreads, and a range of account types to suit both beginner en professional traders. And finally, IronFX’s educational resources provide essential tips and insights into all aspects of forex trading.

Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked in this communication.