How to learn CFD trading: Beginners’ guide

Trading ETFs or CFDs on shares are examples of financial asset speculation. However, the latter differs slightly from stock or fund investing in that you never actually own the underlying market. Instead, a contract for difference, or CFD for short, is what you buy or sell.

CFDs display real-time financial market prices. The exposure you receive from trading one is the same as it would be if you had purchased the asset it tracks.

Still, you’re purchasing a contract rather than making an investment in the market. Additionally, you can trade the difference in asset prices between the opening and closing prices of your position through that contract.

Beginners’ guide to CFD trading strategies

In order to trade CFDs effectively, you should definitely stick to a trading plan. Which markets you trade, when to open and close positions, and other factors are all determined by your strategy.

There are some truly fundamental trading techniques. For instance, you may choose to simply purchase stocks in economies where the market is favourable. Technical analysis is a tool that many CFD traders use to create more intricate strategies that apply to a variety of asset classes.

Trading trends

Trend trading is a simple way to get started in the financial markets. Assets frequently follow trends, experiencing consistent price increases or decreases over extended periods of time. Trend traders enter a market as soon as a trend appears to be starting and exit as soon as a reversal appears likely in an effort to profit from riding these trends.

Trend trading’s popularity is due to its ability to be used across various timeframes. While long-term investors may use trends which persist for months or even years, short-term traders can capitalise on trends that last only a few hours.

Understanding the beginning and end of a trend is crucial for successful trend trading. Trend traders frequently employ technical indicators like stochastic oscillators, moving averages, and RSI to aid in this.

Trading breakouts

Support and resistance levels are another feature of price action that breakout traders use to plan their positions.

These are charts’ areas that a market has never moved above historically. A market has historically bounced higher at support levels and declined at resistance levels.

The foundation of breakout trading is the idea that the market will move steadily in that direction if a support or resistance level is broken. Thus, a market that breaks over resistance will most probably launch a bull run, and the opposite for a market that breaks over a support.

Mean Reversion

On the other hand, mean reversion refers to the idea that a market always returns to its “average” price. You can trade a market’s return to the mean if you can recognise when it has strayed from this average price.

The mean price of a market can be determined using a variety of methods. For instance, you might develop a long-term trendline on a chart and track any deviations from it. Alternatively, you may observe the price movements of numerous businesses in related sectors. If one business’s price deviates from the others, this may indicate a business opportunity.

Mean reversion is an increasingly common approach among algorithmic traders who use computers to execute orders on their behalf, due to its flexibility.

Steps to CFD trading for beginners

1. Pick a CFD broker

Choosing a trustworthy CFD broker to register with is the first step. Take into consideration IronFX, a renowned CFD broker with numerous distinctive services, as you weigh your options. IronFX is an award-winning broker that provides traders of all skill levels with easy-to-use trading platforms, access to a wide range of financial instruments, and extensive educational resources.

2. Open & fund your account

To start trading, you must first open an account with your preferred CFD broker. Once the account has been successfully opened, you can quickly use the available payment options to fund it with the desired amount of capital.

3. Select a CFD market

IronFX provides a wide selection of trading instruments available as CFDs, including forex, stocks, indices, commodities, and more. To determine which market best fits your trading strategy and goals, conduct extensive market research, make use of IronFX’s educational resources, and apply technical and fundamental analysis.

4. Build a solid trading plan

Having a clear trading plan in place is crucial before you start trading. Your trading objectives, risk tolerance, and strategies should all be part of this. A trading plan serves as a road map to help you stay focused and make decisions.

5. Place your trade

After creating your account and choosing a broker, you can place your first trade:

• Choose buying or selling: Based on your trading strategy and market analysis, decide if you want to start a buying position (go long) or a selling position (go short).
• Decide on position size: Taking your risk tolerance and available funds into account, choose how many CFDs you want to trade.
• Select leverage: Determine the right amount of leverage for your trading strategy and risk tolerance. By providing competitive leverage options, IronFX enables you to increase the potential of your trading. But always remember to use leverage sensibly and be aware of the risks involved.

• Establish stop & limit orders: As part of your risk management strategy, establish take-profit and stop-loss orders. These orders automatically close positions at preset price points, protecting your trades and securing profits.
• Track & close the trade: When the market conditions change, remain alert, keep an eye on your trade make the necessary adjustments and manually close the trade.

Tips for trading CFDs

• Learn the fundamentals: Make sure you understand what CFDs are and how they work before you start trading them.
• Open a Demo account: If you’re new to trading CFDs, it’s best to start with a demo account. This will enable you to become acquainted with the market and how trading works without having to risk real money.
• Use leverage wisely: CFD trading allows you to trade a larger position with a smaller amount of capital because it involves leverage. Leverage can raise potential returns, but it’s crucial to use it wisely and understand that it can also increase risks. Always use effective leverage management to prevent large losses.
• Diversify your trading portfolio: Most CFD brokers provide access to a large array of assets. Use this to your advantage by spreading your exposure over a variety of asset classes. This may improve risk management by lowering reliance on a single asset.
• Stay up to date: To make wise trading decisions, stay current on market news and trends. You can gain important insights and anticipate future market movements by keeping up with current affairs and market developments.
• Control risks: Employ risk management tools, like stop-loss orders, to reduce possible losses. You should never invest more than you are able to lose, and you should weigh the risks associated with each trade.
• Continue learning: There’s always something new to discover about the financial markets, which are always changing. Continue to learn about risk management procedures, market analysis methods, and trading strategies. Gaining more knowledge will help you become a better trader and adjust to shifting market conditions.

• Accept the costs: Be mindful of the expenses related to trading CFDs, such as commission fees and overnight commission. When assessing your potential earnings, take these expenses into account and make sure they are handled correctly.

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.