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How To Trade Indices And Stock Index Cfds by jokpeme1: 8:23am On Jun 01, 2021 |
Financial markets have been in existence for a very long time. It's a sector that offers limitless earning potential for those who understand trading. Although trading Contract for Difference (CFDs) offers great rewards, it’s also considered risky especially when proper risk management isn't observed or implemented. If you’d like to plunge into trading, it’s important to learn the basics. Trading Indices companies within an exchange require a person to learn appropriate strategies and proper risk management to protect their gains. The following are some of the most important aspects of CFD trading. What Are Indices Indices refer to the measure of the price of a particular group of companies within an exchange. The commonly traded indices include the FTSE 100, DAX, NASDAQ 100, and the S&P 500. One of the benefits of trading indices is the ability to trade an entire sector or economy with a single open position. CFDs allow a person to speculate on the prices of the various financial market without purchasing the underlying assets. Indices are considered to be very lucrative since they provide longer trading hours. When trading CFDs, traders can profit when the markets move in either direction. The following are the common components of trading CFDs. Common Features In CFD Trading Deal Size Given that CFDs are traded per the underlying asset, their contract size tends to be the same. Thus, you’d require 500 CFD contracts of HSBC to trade 500 shares of the underlying HSBC asset. This makes trading CFDs quite similar to traditional trading as opposed to trading options. Short And Long The possibility of earning when the prices rise or fall makes CFD trading very lucrative. There are two terms that you'll mostly encounter when trading, long and short. In essence, going long refers to buying while selling is known as going short. Profits and losses are usually calculated when the position is closed. To mitigate losses and the risk of being liquidated, it’s always advisable to use stop losses when trading. Leverage Trading The ability to use leverage is a factor that has drawn many to trade CFDs. Leverage allows traders to access a large position without fully committing to the entire amount. This means a trader may only require 5% of the total amount to acquire 500 shares of Apple. Although the upside of gaining can be lucrative, the potential of loss is also magnified. Tips On How To Be Successful In CFD Trading Trading Plan Before engaging in any trading activity, ensure you have a solid trading plan. This simply means having a set of rules that determine your entries, exits, as well as money management guidelines for all your trades. Backtesting is essential in determining the viability of a particular trading plan. Having A Business Mindset You should always approach trading with the perspective of running a business. This will aid you in having the right mindset especially during the start of your trading journey. During this period, new traders rarely net substantial gains as they projected. It's a reality that can be frustrating. Similar to any other business, you’ll be faced with various issues including losses, expenses, uncertainty, taxes, and sometimes even stress. Managing trading as a small business will enable you to handle such situations better. Protecting Your Capital This is perhaps the most important element in trading. No capital, no trading. Thus, it’s important to go above and beyond to implement proper risk management. This doesn’t mean you won’t ever face a single loss. Every trading system encounters losing trades. Protecting your capital simply means avoiding unnecessary risks. Final Thoughts Trading CFDs can be very lucrative especially when approached the right way. If you want to begin the journey of being a trader, be sure to implement the strategies outlined above. |
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