Today, Nigeria is a popular location for global brokerage firms. Online trading is booming. Through modern tools, locals may buy and sell a range of financial instruments. This year when lockdown measures have shattered conventional employment, remote opportunities are vital. Thanks to brokers, Nigerians may learn about the trading of special derivatives known as CFDs.
Today, it is easy to find CFD offerings tailored to local audiences. If you are hesitant about the instrument, this article is for you. We will look at peculiarities related to CFD trades and keys to success in this field. In many respects, trading is similar to Forex, and you will notice a lot of familiar terms.
Learn About Classification of CFDs
Contracts for Difference are derivatives tied to underlying assets. No ownership is involved: you buy and sell an agreement with your broker. As its subject is a price change, choose assets you understand best. For instance, if you are knowledgeable about the oil market, CFDs on crude oil are worth considering.
Do Not Trade Without a Plan
The strategy is the cornerstone of success. Learn more about what is CFD and how to trade it in Nigeria. Develop a plan thoughtfully – it is worth investing time and effort. Once the framework is ready, stick to it. Too many traders stray away from their strategies hoping to make just a little more profit. While you may be lucky a few times, it is a road to failure.
Why do you need a plan? Humans are irrational beings by nature. External factors may prompt us to make decisions based on gut feeling. This is the opposite of systematic trading. Your plan must detail the vital aspects of each position. For day-to-day trading, these include:
- goals (per individual trades and generally);
- trading style;
- acceptable size of trades;
- strategy for entry;
- strategy for exit;
- risk management strategy.
Starting a plan may be challenging. If you have never done it before, visit the FXTM site. This brokerage offers CFD accounts and professional guidance on the subject.
Develop Strategic Thinking
While trading has borrowed a few terms from gambling (e.g., chasing losses), these fields are drastically different. CFDs are bought and sold based on an in-depth analysis of facts and figures. Luck may help you, but only occasionally.
Develop your analytical skills. Read about the experience of famous traders and subscribe to dedicated YouTube channels. It is always better to learn from someone else’s mistakes rather than pay for your own missteps. Trusted educational resources provide proven strategies and priceless industry insights.
Keep a Journal
You may think paper diaries are outdated and dull. If so, you will be surprised by the benefits of trading journals. Written notes allow you to review your existing strategy and identify weak points. It is important to write down all of your trades, their key parameters, and motivation behind them. Include comments on any feelings that affected your decision-making.
Manage Risks and Money
CFDs may be traded on a margin – just like currency pairs. This scheme is tempting, but also highly risky. When leverage is engaged, the odds of wiping one’s account go up. You do not have to afford the full contract value. However, it is vital to decide how much risk to accept for every position. Is the potential profit worth it?
High-volume trades bring high returns if successful. At the same time, they carry high risks. The dependence is linear. Despite the convenience of leverage, remember about the probability of bigger loss. Make sure your plan includes acceptable risk per trade. One of the most common approaches is the 10-percent rule: investing 10% of funds in a single trade. Make Stop Loss a habit.
Emotions As Enemy
Emotions are a common trigger of errors. Decisions must be rational, not based on momentary impulses. Emotional analysis is useful, as it highlights your psychological weaknesses. For instance, you may find yourself chasing losses, which is a reckless thing to do.
With a clear plan, it is easy to spot emotional triggers and avoid them. Whatever happens, you will have a course to follow. This does not mean plans are static. Test your strategy over a period of time. If results are consistently poor, make amendments.