You love your job, but the salary simply doesn’t stretch far enough to do all the things you want – so what to do? Unless there’s a magical way to find a much better-paid job, the only thing you can do to increase your earning power is come up with a side hustle.
There are many ways to generate an income, but many are uncertain and involve lots of effort for minimal return. That’s not the case with trading; even if you’re completely new to the market, it’s possible to enjoy good returns with just a bit of research.
CFDs, in particular, are a great side hustle. They’re not as complicated as stocks and shares as you are simply speculating on price rather than making a purchase. If you’re thinking seriously about learning to trade CFDs to bring in more money, here’s what you need to know.
01. Create a Dummy Account First
So, you’ve read everything you can get your hands-on, and you’re keen to dive in and get started? While it’s great that you’re enthusiastic, the practicalities of trading are very different from the theory.
It’s strongly advisable to get a dummy account to familiarise you with the market and how it moves. If you want to learn how to trade forex and other types of CFDs for maximum profit, practice is your friend.
It’s not just newbies who have a dummy account; many traders keep one running for trying out new strategies before they risk any of their own cash on a risky move.
02. Know When to Cut Your Losses
The psychological battle is one of the hardest for new traders to win; accepting that some days you will walk away with a loss can seem like a bitter pill to swallow.
There’s a natural tendency to chase losses in the belief that eventually, the tide will turn. This may well be true, but in the time it takes for that to happen, your losses will be huge and painful.
Always enter a trade with a clear strategy and be disciplined enough to identify when you’re on a losing streak and cut your losses early.
03. Don’t Be Swayed By Brand Loyalty
Trading in a sector that you’re knowledgeable about can be a good idea as you may already have an idea about peaks and troughs and where the demand lies.
However, you’ll need to be vigilant that your decision-making isn’t being swayed by existing brand loyalty. Your trading decisions are no reflection of your feelings for the brand, so ensure that your choice of going long or short isn’t being influenced by wishful thinking rather than hard facts.
04. Keep Equity in Your Account
As we’ve already mentioned, losses are an inevitable part of trading and absolutely no cause for panic. Every trader experiences disappointing days occasionally; it’s an occupational hazard.
You need to ensure that you keep a decent amount of equity in your account at all times. Not all brokers will issue a margin call; some just automatically close out if you dip below margin requirements.
Having some of your trades liquidated due to lack of funds can be frustrating, so keep sufficient cash in your account to cover movement, and you won’t be put in this position.
05. Use Stop Losses – But Not Too Tightly
Stop losses are an integral part of trading and offer protection against a market that’s swinging rapidly in the wrong direction. It would be best if you never considered opening a position without setting a stop loss. Trading conditions can change suddenly, especially in volatile markets such as forex.
A stop-loss will prevent you from incurring huge losses, protecting your account balance to continue trading on another day. Therefore, stop losses are not just for new traders; they are an essential tool for even the most experienced trading pros.
However, you need to think carefully about the point where you’re going to set your stop loss. You’ll need to do your homework and find out what degree of fluctuations are expected when a price is on the move.
Setting a stop loss too tightly means your position will be automatically closed down, potentially cutting off a winning trade too early.
06. Consider Diversifying for Protection
If you believe that a particular sector will gain, you may be keen to open up long positions on companies you know are key players. This may seem like a good strategy, but you are exposing yourself to unnecessary risk.
Having open trades on related stocks (all in the same direction, i.e. long or short) means there’s a much bigger chance of incurring heavy losses if the market moves unexpectedly. Diversifying means you won’t be wiped out by sudden, swinging changes in direction.