Is it possible to trade CFDs (Contracts for Difference) for a living?
Trading CFDs for a living is a risky but possible proposition for the astute investor. The leverage available from CFDs mean that a successfully executed trade can be very lucrative. A CFD, or Contract for Difference is basically a contract between a seller and a buyer that specifies that the buyer has to pay the seller the difference between the existing value of an asset and the value of the asset at the time of the contract. CFDs provide investors and traders with the opportunity to profit from the movement of price without having to own the underlying assets. The CFD contract value does not take into consideration the underlying value of the asset; the only consideration is the price change between the entry and exit trade.
This is achieved via a contract between a broker and a client and does not involve any forex, stock, futures or commodity exchange, though these may form the underlying asset the price difference is taken from. Trading CFDs for a living provides a number of key benefits which have boosted the tremendous popularity of the instrument in the last decade.
The reward for successfully trading CFD is alluring to the majority of investors in the markets. Stories of great fortune and sudden and steady trading income are often spoken about in trading blogs and Internet forums. Therefore, it is not surprising that with the attraction of substantial earnings from simply playing the markets, trading CFDs is becoming more and more of a popular style of speculative investment. However, despite the hype, trading successfully involves determination, hard work and a reasoned and sensible tactic to play the CFD markets. When this is realized, some average traders see the prospect of trading CFDs for a living as an obscure dream that is hard to achieve. However, it is an achievable reality to bold traders who have wise and creative ideas.
The first and most essential point to keep in mind is that successfully and consistently trading CFDs requires expert and intimate understanding of what the instruments are, how they actually work and what is taking place in the respective CFD markets. On the other end of the spectrum where some traders view this type of trading as an impossible dream, there are a number of inexperienced traders who are under the mistaken impression that they can simply ‘feel out’ the markets. Others rush in feet first to take up a position and just get started. What is worse is when this rashness is rewarded with a successful trade, by pure chance, this strengthens their belief that it is easy to trade CFDs.
However, similar to everything in life, being successful at trading CFD requires an investment of energy and time in becoming skilled at the basics and being on top of continuing developments. Ensure that you are aware of your stuff before committing to any position. After this you can start to trade. Anything other than a fully-researched and rational trade is not better than gambling and gamblers tend not to do well in trading situations.
Do Not Get Greedy
Greed is among the main traps that catches traders of all levels of experience. Before you write off greed as an issue that will not affect you, you should understand that being greedy is a natural human reaction. After all, when tempted to up the ante, going a little further to make additional money from a transaction, a number of traders are more inclined to take the risk. This is particularly true when they have already reaped the fruits of a prior successful trade and taking risk, pushing things a bit further is typically an easy stumbling block to face.
To become a successful trader, you have to appreciate the dangers of getting overly greedy and realize that successful trading calls more for balance than for taking risks. There are definitely opportunities that call for slightly relaxing your risk appetite; however, diversified and cautious trading is typically the most effective long-term approach. With CFD trading, slow and steady will win the race, its built-in leverage will produce the potential for profit, without you needing to up the stakes constantly.
Do Not Become Too Attached
As a successful trader, another critical lesson to learn is to become objective where your trading decisions are concerned, to enable you to bank the profits and accept losses in the most suitable manner. Like most situations, this is easier said than done and a number of traders become frustrated when a position they have thoroughly examined takes a turn for the worse. Bear in mind that an errant trade is not an indication that a bad call has been made, it simply means you did not choose the right path on that occasion. It is way better to quickly cut out of a losing position than to stick around and spend money, hoping that it will recover eventually. The most successful traders are decisive and ruthless. They are not scared to change their minds if the numbers begin to show that a position is clearly losing.
Diversify Across Instruments
Among the main lessons to learn from the most successful traders in the world is that diversity is instrumental to minimizing risk. It is important to have diversity across instruments; however, having diversity across the markets is much more crucial. Successful traders make sure they are in no way left wide open to the prospect of a total market collapse. For instance, banking securities plunged in 2007 when the financial crisis started and a number of CFD traders lost substantial amounts of money because they were too heavily involved in that sector. CFDs are tremendously helpful trading tools that can generate fortunes but only when used in a cautious, logical and sensible manner. To stack the odds in your favour, you should diversify the exposure with your CFD positions to get the best effect.
Trading CFDs is Challenging But Not Unachievable
This type of trading is way more viable than trading through Options, Futures or the spot market itself. However, the gag is success is not gained in a linear manner; instead, it typically works exponentially. Every trader arrives at a threshold in their trading skills and if they end up going beyond that, then there will be exponential increase in profitability. When this limit has been surpassed, the difference made by CFD contracts will be obvious and trading CFDs for a living will become more of a routine as the profits keep rolling in.
This does not happen because the holy grail of better predicting the markets was found by traders but because CFDs allow for the implementation of perfect, 100 percent linear and valuable hedging on non-winning trades. It is like getting back the majority of their losses on the losing trades, while for the most part, the profitable trades remain lucrative. In addition, CFDs provide them with remarkable liquidity. CFD trading on the internet is so fascinating that all creative traders come up with ways to handle losing trades. For instance, using tight stops and running the risk of losing big bucks in a sideways market is unnecessary, especially when all the trader needs is a few hours to allow the market to settle and leave the decision about the losing trade for later.
The answer is provided by the CFD hedging which locks the losing trade by compensating for the losses. After the market is settled and the decision has been carefully made by the trader, they perform accordingly on the trades. When trading forex, success does not work in a linear way but works exponentially. However, it is the fact that CFDs are linear in pricing. This makes CFD trading an even more effective strategy, when traders go beyond their initial limit. It is definitely possible to trade CFDs for a living, with the exception that you will not generate monthly income. Traders who intend to exponentially increase the size of their account can go all the way until market conditions or personal limitation impose natural limits. With trade size, the safety limit is roughly $100 per pip. Once this size has been reached by traders, they will begin to have problems with liquidity, particularly if trading fast. However, by that time they would have made millions.
CFD Trading is Also a Matter of Faith
There may be a number of individuals who will try to dissuade you from continuing with your trading. These are individuals who are socially conditioned to believe that holding down a 9 to 5 job is what life is all about and not having such a job is similar to not having an identity. Taking on CFD trading as your livelihood will certainly pose challenges until your pivotal skills limit has been reached.
When you get to this point, profits will increase exponentially and your confidence will be given a major boost. Once you have developed real confidence, the opinions of other people will not matter to you. You will know that everyone is entitled to having his or her own opinion and you have the right to simply agree to disagree with their perspectives.
This is an attitude that you should develop for more than just online trading. In many different aspects of life, you will need to make sure that you are not easily swayed by the opinions of others because a lot of people are socially conditioned and like to do what is socially acceptable and things that fit inside what is considered to be “the norm.” They prefer to accept the popular opinion so they can be socially compatible with their peers instead of pursuing a different path which might prove to be better for them.
In general, people typically have a negative outlook on risk takers. They simply will try to reject CFD trading stories of successful millionaire traders as being nonsensical and fictitious. However, they do this without evaluating the facts, through forceful thinking; this is all because they do not want to admit that other individuals out there is much smarter than they are. Sensible traders are aware of the importance of evaluating facts and know that trading CFD for a living is feasible.
If the trades of a losing trading technique are flipped, this will lead to winning ones; the complicated part is in quickly assessing open losses to allow winners to run for longer and cut losers short. For years, this is the information that the theory of classic trading has been giving us. However, it has not provided us with any practical guidelines to actually assess open trades. Nonetheless, it is indeed possible to appraise open trades and come up with a profitable trading system with a total drawdown of under 30 percent, every single time.
So regardless of what individuals will tell you in an effort to deter you from successfully pursuing trading opportunities, it is a fact that profitable trading exists and keeping quiet regarding your efforts and trading success is the best way to go. As soon as you get past the simple CFD trading seminars and guidebooks, you must endeavour to lead a mission of secrecy, where your focus will be on making money while trading and not seeking recognition from negative thinking individuals. Make sure you keep these individuals away from your trading activities. If you are successful, you will be able to disguise your financial status by way of a classic business. You can tell people that you are dealing in antiques or you invested overseas and individuals will believe your story.
Becoming successful at CFD trading is not something that will occur overnight. If you genuinely want to hit the ball out of the park, you need to prepare yourself for the fact that you will experience difficulties and losses along the way. Nevertheless, by keeping a rational and clear head and carefully considering every trading decision, you will provide yourself with the best possible opportunity to have consistent success in trading CFDs.
Being fully aware of what you do, back to front and inside out, will typically happen of its own volition eventually as you become immersed in the markets; however, there is no benefit in leaving things to chance. Quickly becoming an authority in trading CFDs and familiarising yourself with the markets is the best approach to succeeding as a CFD trader.