Once you have done your ‘homework’ and decided that forex and CFD trading is the way to go, you will do well by heeding some advice and taking advantage of a few essential tips in order to maximise your trading profits.
The Right Broker
Compare the credentials and expertise of various brokers before you decide to commit to anyone. Companies such as CMC Markets are known to be professional and hands-on when it comes to dealing with and advising prospective clients. A tip: Although it should never be the only consideration, try and find a broker that offers you low spreads, which will put more money in your pocket.
Trading in foreign currency (forex/FX) refers to the activity whereby you buy one currency at the same time that you trade another (e.g. USD and EURO); this can be a very profitable method of trading provided you follow some basic principles. Since speculation is at the heart of forex trading, the investor should not forget that volatile markets are a given and that he/she should never trade on impulse, but only with some basic principles in place.
CFD’S (Contract For Difference) refer to the speculative investment in a variety of financial markets such as shares and currencies to try and maximise profits by trading on an assumed future value of these products. Two parties enter into an agreement whereby the seller will pay the other the difference in value of the asset between the start and close of the contract; the buyer will pay the seller if during the contract losses are incurred. The asset is never bought – speculation is based on price movement during the time of the contract.
In forex as well as CFD trading a great tool is the leverage, which the broker allows the trader. As a trader you only put down a small deposit to trade; the broker comes up with the rest. You therefore have quick access to a broad spectrum of trades without having to produce the full amount of the value of the trade. A word of caution: Just as leverage can work for you, it can work against you if the outcome of your trade is negative. So: Never speculate in such a way that you spend more than you can afford to lose.
Study the movements of the international currency trading markets and come up with a proper strategy which you base on past market movements, historical data and current trends. Be sure you look at factors such as economic growth and socio-political indices in the regions whose currencies you want to trade in, as well as their interest rate movements. Be aware which economies, and therefore which currencies, are in demand and which you do not want to acquire/want to get rid of. To be successful you cannot look at this as a part-time endeavour – you have to study the markets every day: on the internet, print media and other platforms.
Since forex and CFD trading are investment tools that allow you flexibility, tax benefits and reduced costs (as opposed to other forms of trading, for instance), make use of these options to benefit from markets where good money is to be made. You trade on assumed values and do not buy the underlying assets, thereby avoiding additional costs, more time and different requirements.