7 important CFD Trading Tips & Tricks for beginners

Profit and loss are very close together when trading CFDs. If you are a beginner speculating with CFDs, you can gain a lot of money very quickly due to the leverage effect and of course also lose. If you want to trade CFDs successfully, you should therefore be sure to observe the following rules:

1) Always remember: CFD trading is speculative!

CFDs are speculative financial instruments and belong to the group of derivatives. That means their value is derived from the development of certain underlying assets such as shares, indices or currencies.

CFD trading should therefore not be confused with a direct investment in a share. As a shareholder you become a partner in a company. In the case of a positive development you profit in the form of distributed dividends as well as in the long term from a positive price development.

2) Inform yourself in advance about the product CFD

Unlike warrants and certificates, CFDs are designed to be simple and transparent. Nevertheless, before their first trades, beginners should acquire sufficient basic knowledge to understand how CFDs work. You should therefore inform yourself sufficiently in the CFD knowledge section before you start trading CFDs.

3) Choose low leverage at the beginning!

The leverage of CFDs looks very attractive at first sight. The higher the selected leverage, the stronger the effect of price changes. This increases the chance of winning but at the same time the possibility of losing, as the leverage always moves in both directions.

A lever that is too high can also mean a total loss. A few minutes can decide your financial fate. Therefore you should always choose a low leverage for your initial investment in CFDs.

Note: Due to legal regulations, restrictions on leverage in CFD trading have been in effect since 01.08.2018. Depending on the CFD type, leverage for private traders is limited to a maximum of 30:1!

4) Place bets on underlying instruments known to you!

CFDs belong to the group of derivatives, i.e. their value is derived from the performance of an underlying asset. With few exceptions, all CFD brokers act as so-called market makers. An order placed by you is therefore not forwarded to an exchange but the buy or sell price is set by the broker himself.

It is therefore very important that the broker shows prices that correspond to the prices of the underlying assets on the market. Larger deviations have a great impact on your profit or loss due to the leverage effect.

Therefore, at the beginning, only invest in CFDs on underlyings that you are really familiar with. The Dax is particularly recommended here, as are European and American blue chips. Gold and oil are again suitable as investments in commodities.

5) Use the possibility of money management!

Due to the strong leverage effect of CFDs, the limitation of losses or the preservation of capital should be the first priority. You as an investor have a strong influence on the risk yourself.

Never put everything on one card and determine beforehand how high the maximum percentage loss per trade may be. Always set the maximum amount of loss in relation to the total volume of your securities account. This limits the risk to the amount invested.

6) Pay attention to the costs!

Low transaction costs are usually only incurred for CFDs on shares. Much more decisive here is the so-called spread, the distance between buy and sell price. The higher the spread, the less frequently the underlying asset is traded. With the Dax, the spread should not be more than one to two points. Please note that spreads can widen considerably in turbulent stock market times.

7) Choose a reliable and experienced CFD broker!

Choosing the right broker is the most important step to successful CFD trading. Important questions you should ask yourself when choosing your CFD broker include

  • How much money do you plan to invest in CFDs? Does the minimum deposit required by the broker fit in?
  • Is the leverage you require offered by the broker?
  • What underlying assets does the broker offer?
  • How high are the costs?
  • Does the broker offer a demo account?

The following comparison will give you an overview of selected brokers for trading CFDs:

Risk Note CFD Trading:

Trading CFDs involves considerable risk and can result in the complete loss of your entire capital investment. There may be account types where losses may exceed the capital invested. Leveraged CFD trading may not be suitable for you! Therefore, please read more about how CFD trading works. You should not use funds that you could not afford to lose in the worst case. Make sure you understand all the risks involved in trading CFDs. The content of this website should NOT be misunderstood as investment advice! We recommend, if necessary, that you seek independent advice.


Read my other articles about CFD Trading:

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