In this article, you will read some essential information that will assist you in trading CFDs more efficiently. So, let’s start with the benefits and costs of CFD trading.
The costs of CFD trading contain:
1. Brokerage commissions and fees.
2. The interest that must be paid for holding a position overnight.
To provide you with a better understanding of CFD trading, there is a need to specify how exactly it performs. This step can not be ignored because by understanding how CFDs are traded, it will also be more comfortable for you to understand how leverage can affect your profitability. It should be besides mentioned that this way, you will realize how to determine precisely the costs involved in a trade.
How to determine position sizing rules?
Lets’ have an example that will aid to understand this better. So, for instance, a trader has $5,000 cash available to make use of for trading. A CFD provider offers a leverage of 10 to 1, which consequently gives a trader a leveraged float of $50,000. Let’s say that a trader chooses to go with a fixed trade size for his/her position sizing model and that he/ she is going to put $5,000 into each particular CFD position.
Stop Loss Setting
There is no need to mention that you can not trade without having a stop loss in place since this is the only way to protect yourself from losses in the case the market turns against you. If the trade is at $7.50, a trader can place a stop loss at $7.22. So, in the case, the CFD, which is traded, falls to $7.22 or even more, a trader certainly is stopped out of the trade.
If the case is that the trade goes the way the trader intends and the price starts growing, this will work in a subsequent manner:
Let’s say the upward trend continues for 2-3 days, and the CFD is now trading a $7.80. The truth is that in this case, a trader can stay with the trend as long as he/she adjusts the trailing stop up to $7.65, locking in half income.
Trailing Stop Loss Setting
If the case is that the trader’s CFD keeps on soaring until it hits $8.20, this means that it is time to adjust a different trailing stop – to $8.00.
So, now it is easier for you, as a CFD trader, to understand what exactly is involved in trading CFDs. Of course, it differs from Forex trading or some other types of investments, but there is nothing extremely complicated about it, and you will manage to succeed if you learn the essentials and get some practice.