Read Time: 7 Minutes

Contract For Differences (CFDs) are among the most popular and innovative investment markets; it’s a flexible alternative to traditional trading and investing.

Primarily, CFDs are financial derivative products that let CFD traders (day traders—short-term day trading as one example) capitalise and profit from price movements between the opening and closing prices of trade without taking ownership of the underlying asset classes. Those financial instruments include stocks, commodities, indices, currencies (Forex trading), and cryptocurrencies (cryptos such as bitcoin and Ethereum, for example).

The contract in a CFD is settled in cash, and a profit can be made by going long (buying) and also selling short (going short). It’s wise to remember that while you can experience high percentage returns, nothing is guaranteed in the financial markets. Therefore, the research team at FPMarkets joined forces and devised 5 CFD trading tips you need for 2022.

The Basics

Whether you have trading experience or are a beginner trader, education is foundational to sharpening your skills. For the experienced trader, going back to basics can never hurt and might bring new insight. Finding new angles could also help build and strengthen trading strategies, with constant market changes continually being seen, caused by various events such as wars, natural disasters, and interest rates rising or falling.

Understanding terminology such as ‘currency pair’ (think USD/GBP and GBP/USD, as an example), as well as understanding that a trader or investor should always work with a trading plan, can determine the difference between success and failure. FP Markets boasts a comprehensive education section that includes video tutorials, live webinars, and platform tutorials, essentially covering all you need to know to get you started

Open a Demo Account

For new traders, and even those with trading experience, practising on a demo trading account is a worthwhile trading experience.

A demo account can be one of the best ways to understand the main principles of CFD trading. It delivers a real-time trading environment where funds are not at risk, allowing the trader to backtest trading systems and familiarise themselves with the features and functionalities of the platforms offered.

MetaTrader 4 (MT4) and MetaTrader 5 (MT5) are two of the most popular online trading platforms, a standard for many reputable brokers. These platforms can often be downloaded to either the desktop, android, or apple iOS mobile apps.

Manage Risk

When trading CFDs, risk control is paramount. Like in life, anything can happen. This can range from consecutive winning trades, which often bring on a euphoric state for the trader to a black swan event which can wipe out a trading account. Risk management is a way to mitigate trading risk and this begins with having a sound trading plan and trading strategy.

Setting a protective stop-loss order and a take-profit order is paramount in any risk-management strategy. Market participants can use technical analysis to help set the protective stop-loss order and take-profit orders, employing tools such as support and resistance, trend lines, and also moving averages. Trading any financial product can carry high risk; good risk management, as noted above, can help mitigate those risks and is something successful traders encourage.

Understand Margin and Leverage

Leverage allows traders and investors to increase their exposure in their traded market by trading on margin. This can obviously increase gains, while at the same time can also increase downside risk.

Choose A Dependable CFD Broker

• Fraud Protection.
• Dispute Resolving.
• Transparency
• Protection of investors’ money.

Online brokerages like FP Markets are headquartered in Australia and regulated by the Australian Securities and Investments Commission (ASIC). In Cyprus, the Cyprus Securities and Exchange Commission (CySEC) is used, and in the UK, the financial conduct authority (FCA) is common.

Strict regulations, helpful customer services, easy payment and withdrawal options (debit or credit card, bank transfer), and consistently low fees offered to retail investor accounts make FP Markets one of the more superior CFD online brokers.