SINGAPORE, March 1, 2012 /PRNewswire/ --
Unlike other forms of traditional dealing, CFD trading enables traders to go short, allowing you to profit from a falling market, as well as go long in a rising market.
In addition, traders can potentially enhance their return on investment using a CFD (Contract for Differences) as it is a leveraged product, thus allowing you to maximise your market exposure for only a small fraction of the investment you would typically need to trade the underlying asset directly.
However, it is imperative traders remember that higher leverage can result in losses that could exceed their initial deposit.
With this risk in mind, the following tips will help - in particular - new traders, who are looking to trade CFDs on over 9,000 securities in global markets with City Index Asia.
Understand Your Market
With an extensive range of markets to choose from, it is imperative that you choose a market you understand and have a broad knowledge of.
In the long run, this knowledge will help you take a clearer view on the direction of possible price movements within your chosen market, ultimately guiding your price actions, i.e. whether you choose to go long and buy, or go short and sell.
Something as simple as keeping up-to-date with the financial news, share prices, stock market changes and company reporting dates, can affect your trading choices.
Make Realistic Targets
Your trading targets should be realistic and put in place before you start trading by way of a comprehensive CFD trading plan.
This plan should provide you with a general set of rules of which you can use as a reference point as you begin to trade.
Such rules should cover:
- Profit goals (by day, month and year)
- Size of the trade
- Maximum losses you are prepared to take
- Entry/exit point
The final two rules are imperative to managing your risk; these rules will affect where you place your limit orders and most importantly, your stop loss orders (read more below).
Manage Your Risk
The first tactic in managing your risk is to apply stop losses to your CFD Trading account.
You can choose between a Standard and Guaranteed Stop Loss Order (GSLO); with the latter offering the greatest protection, specifically if gapping occurs in your chosen market.
A guaranteed stop loss is an order to close out a position at a level prearranged by you.
Let's say you buy 500 Singapore Airlines CFDs at 10.49 through City Index Asia, and have highlighted 10.30 as your maximum loss level, i.e. a $95 loss allowance (10.49 - 10.30 - x 500 CFDs).
You can use a GSLO to ensure that should Singapore Airlines reach 10.30, the City Index Asia systems will automatically close out your trade to prevent you from incurring any further losses.
If for example, rising oil prices, which can inflate airline costs, depressed Singapore Airlines share price to 10.25, our systems automatically closed your position out at 10.30.
Even though Singapore Airline's share prices continued to trade past your maximum risk allowance, the GSLO has already stopped your losses by automatically closing out your trade.
There is a small charge for putting a GSLO in place which can vary across different markets.
Summary
Prepare for trading CFDs by creating a plan, gaining knowledge of your chosen market and practicing with a demo trading account from City Index Asia.
Trading CFD on margin carries a high level of risk, which may not be suitable for some investors.
Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits.
About City Index:
Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.
City Index is a leading global provider of margined foreign exchange, CFD trading and in the UK, spread betting. As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. To learn more visit: http://www.cityindex.com.sg/
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