Top 10 Forex & CFD Trading Tips

1 - Using Leverage

You have to be very careful when using leverage, it's a double-edged sword.

You will always be tempted to take large positions in order to win lots of money, but will you be as careful when you are using leverage?

Most likely you won't be careful enough. In order to not screw up, a beginner should never use leverage beyond 10:1, and an experienced trader should use no more than 50:1 leverage.

Oftentimes, you will tend to think only of the profit's you can earn when opening a position in the forex or CFD market.

Remember, if you can earn 8,000 € (or $ or whatever) by opening a position, you can just as easily lose that same amount.

Some good advice: start out by opening a small position, and double it if the price moves in the proper direction.

2 - Use a Stop Loss

It's crucial that you protect your capital by using a Stop Loss. (if you're not sure what a stop loss is, look it up on the Glossary page here!)

You should never open a forex or CFD position without using a stop loss, even if you're sitting in front of your monitor, observing price action. (I know a guy that lost a LOT of money because his internet connection died all of a sudden and he had no way to see what was going on, and what was going on was not pretty.)

A motorcycle rider always wears a helmet to protect his life. Just the same, YOU should use a stop loss to protect your money.

Another good tip: place your stop loss before you validate your order.

3 - Establish a Trading Plan

Before you start trading in forex or CFDs, you MUST have a trading plan.

This way, no matter what type of situation you come across, you'll know exactly what to do since you will have planned it out ahead of time.

There's nothing worse than having to make a decision in the heat of the action.

A trading plan is a bit like a business plan. Would you want to start a business without a proper business plan?! Probably not.

4 - Stick to Your Trading Plan

Establishing a trading plan is one thing, but following its blueprint is another.

Just because you hear someone talking about a new "miracle" indicator doesn't mean that you should suddenly change your plan, because you're often going to hear about sure-fire trading methods where you can't possibly ever lose.

Stick to your plan and don't let others lead you down the wrong path.

5 - The Size of your Forex or CFD Positions

Lots of traders always open positions that are the same size each time.

This is a huge mistake. You should commit a sum of money according to how much capital you have, and not rely on what you "feel" like committing. (For example, you can open a position and set the stop loss so that you lose no more than 1% of your capital.)

6 - Use Proven Methods

Don't try to revolutionize the world of forex trading (or CFD trading).

It's better to use a good old method that has proven to be successful over several decades rather than look for a new system that could allow you to earn much more money.

7 - Manage Your Emotions

Never let your emotions take over your senses, but don't ignore them either.

Knowing how to manage your emotions is one of the keys to successfully trading the forex and CFD markets.

8 - Follow Your Own Advice

Lots of traders don't make the effort to analyse the currency or CFD markets, or the macroeconomic events and announcements taking place. These traders don't forge their own opinion and they are under the impression that it's enough to just read the various reports and analyses published by professionals.

Is this the right way to learn how to trade?

No, of course not. By blindly following the advice of others you will be vulnerable as you won't be able to correctly identify their mistakes.

9 - Your Money

You should never trade with money that you need to survive.

For one, you could lose all of this money.

In addition, if you trade with money that you need to pay your bills, eat, etc... you won't be able to manage your emotions effectively. Your emotions will negatively influence your rational reasoning.

10 - Trade out of Passion, not Obligation

Your motives are important. If you decide you want to be a forex trader or a CFD trader for the wrong reasons (you want to become filthy rich, you want to become famous, you want to work from home), you might quickly become disenchanted with the whole trading thing.

You might end up taking big risks in order to achieve improper goals.

As with many things in life, trading should be done out of passion, not obligation.

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