Things you need to know about CFD trading industry

by Elearnmarkets on Derivatives

We all know trading is one of the most profitable business in the world. Due to the easy accessibility in the retail trading industry, many people often consider this as their prime source of income. But sadly the majority of the novice traders don’t even any clear understanding about the CFD trading industry.

So what is CFD trading? CFD stands for Contract for Difference which is a general agreement between the buyers and sellers to trade the financial instrument across the globe without physically possessing the asset. CFD trading is extremely popular in today’s world since the retail traders can easily trade the financial instrument with the high leverage trading account. You don’t have to deposit a huge amount of money to trade with a big lot. Just by using the high leverage trading account, you can easily execute a big lot size and secure a decent profit.

How do you make a profit?

Those who are relatively new to the trading industry might think about the profit factors of this investment business. Just like traditional share business, you need to assume the price movement of the financial asset with an extreme level of accuracy. Let’s say you have opened a new buy order in GOLD. So if the price of gold goes up, you will be making a profit. Your profit factors will be directly related to the size of your lot. For instance, if you trade with 1 standard lot, for single pip movement you will be making $10 profit. Unlike the share market, you can also make a profit by selling the GOLD when the price falls down.

How to find the best trades?

Majority of the traders don’t understand the importance of technical and fundamental analysis. Technical analysis will help you to identify the key trading spots in the market whereas fundamental analysis will allow you to ride the long-term market trend.

There are two types of traders in this trading business. The long-term traders always trade with the market trend and hold on to their position to maximize their profit. On the contrary, the short time frame traders are often known as scalpers usually close their trade within one or two hours. Trading CFDs is an art and you need to master all the details of this market. Instead of using the real account start trading the market with demo accounts. Demo accounts will give you the perfect platform to learn the details of this market.

Some of you might think demo trading is a waste of time. But in the eyes of experienced traders in the CFD trading industry, demo trading is often considered as blessings for the novice traders. You can easily develop your trading skills without risking any real money. Try to develop a simple trading strategy based on your personality and trade this market with managed risk.

Risk factors

No matter how hard you try, you will always have to lose trades on CFD business. Trading is all about probability and losing is just a part of this profession. As a new trader, you should never risk more than 2% of your account balance. Those who want to become a Forex millionaire by taking a huge risk should never consider trading as their full-time profession. In fact, trading is often considered the smartest investment business in the world. You can’t afford to take the huge risk even though you have tons of money in your account.

Try to find high-risk reward trade setup since it will help you to cover up the loss. If you lose few trades in a row, consider them as your business cost. But never break your rules since it’s the prime ingredient to save your investment in the long run. Just follow the basic rules of investment and you will be able to change your life.

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Disclaimer

Elearnmarkets.com wants to remind you that all our content is created solely for the purpose of education. No strategy, stock, commodity, fund or any other security discussed here is any way a recommendation for trading or investing. Elearnmarkets.com will not be any way responsible for trading losses incurred by any individual or entity for trading with real money. Please take advise of certified financial advisers before trading or investing.

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