CFD trading seems appealing to many beginners who are planning to enter the market. No doubt, it comes with low initial investment requirements and the possibility of high returns. But keep in mind it also carries a high level of risk.
If you want to enter the volatile market as a CFD trader but are wondering whether it is a suitable approach, this blog is for you. Here is a detailed explanation of the concept behind CFD trading, the risks of using leverage, and valuable tips for beginners to become successful CFD traders.
CFD Trading as a Beginner
Before entering the volatile market, you must understand how to trade CFDs. Otherwise, you will soon end up eroding your entire account balance.
Note that CFD trading is highly risky due to the volatility and unpredictability of the underlying asset’s price. That’s why it is vital to have a good grasp of the markets and extensive knowledge about the assets that you are trading.
Moreover, as a beginner, you are not aware of what is happening in the market. At this time, you need a strong trading plan that best matches your risk tolerance and financial goals.
Concept of Leverage in CFD Trading
By using leverage strategically, you can significantly amplify your profits in CFD trading. For example, if you have a $1000 account balance, with the leverage of 1:10, you can hold a position in the market worth $10,000.
Risks of Using Leverage
It is essential to realise that leverage not only increases the profits but also comes with a lot of risks, such as:
- You can lose more than your initial investment.
- Due to the high volatility of markets, you can be subject to sudden and unexpected price movements.
- Trading with unlicensed brokers can lead to fraud and other financial problems.
CFD Trading Tips for Beginners
- Start with a Demo Account
Rather than risking your real money, it is recommended to start with a demo account. You can practice different trading strategies here and analyse which of them are most effective. It will give you a better understanding of various markets and different assets.
- Learn the Basics
As a beginner, you must take advantage of the educational resources available online, such as tutorials, guidelines, and articles. They can help you understand the market dynamics. Keep in mind that the more you learn, the better equipped you will be to execute successful trades.
- Know how to Manage Risks
Risk management is the key to becoming a successful CFD trader. You must be aware of what are the potential risks that you have to face in the market and how you can manage them.
You must decide in advance how much you are going to risk in your next trade. However, it is recommended not to take risk more than 1-2% of your total account balance.
- Start Small and Build Gradually
Rushing into trading large positions is not a wise approach. You must begin with the smaller trades. Once you know all the ins and outs of the market, you can invest more and hold large positions.
