How to Trade CFD on Stocks the Right Way

Trading stocks or CFD (contract for difference) on stocks can be quite difficult and frustrating, especially if you are a newbie in the world of finance. There is a large number of things to consider before pulling the trigger and diving into the deep water. First, you have to select a sector which you like to follow and analyze, and where you feel confident that you know the business. For example, if you are a software developer maybe it will be good to focus on technology stocks. If you are a farmer, you will focus on agricultural stocks, or if you know a bit more about geology you will choose to focus on gold mining stocks. This is a very important step because it will boost your confidence in your decisions and also will give you an edge in the stock market game. There is nothing worse than buying a stock you don’t know and don’t understand their business model just because you saw a recommendation on YouTube or in the business section of a news website.

After you pick the niche you must prepare your analytical arsenal. Finding a reliable financial information source is a crucial element of each successful stocks trader. Yahoo Finance or Bloomberg are good sources of financial data and analytical articles you can start reading. Keep in mind your Excel spreadsheet will become your best friend when it comes to fundamental data checking or financial modelling. Never rely on a single source or opinion. Always cross-check different articles about a company you are interested in. If they are very different and even opposite than maybe it is not the best decision to trade this particular stock. If all of them agree, you still have to di your own due diligence and see if the arguments presented are strong or dubious.

Trading CFD on stocks is a risky game and better not putting all your eggs in a single basket. You may already hear the term diversification. It means placing multiple bets on multiple CFDs of different stocks. If for example, you spread your capital across 10 different positions, you have 10 times lower chance of losing your entire capital in case you make a mistake and choose a losing stock. Diversification can help, but it is not a solution to every problem. You have to be able to analyze not only the company where you want to invest but also the market sentiment, to know if the current market cycle is bull market or bearish market. Knowing the global macro-environment is crucial if you want to be a successful stock trader.

Finally, but maybe the most important thing is to carefully choose your trusted broker, where you will deploy your capital. No matter how easy it is to open a brokerage account, never select a broker based on random advertising or gut feeling. Making a careful, informed decision about your CFD broker is a very important decision and you should never treat it lightly. Finding a trustworthy and reputable broker starts with checking the CFD broker reviews and comparing the alternatives based, not only on the conditions these brokers offer, like access to specific markets, cost of trading (spread, overnight rates), but also based on customers feedback and regulation. The last is especially important if you plan to deploy a significant amount of capital. Regulated in EU or UK brokers always ensure the protection of the funds in case of broker’s insolvency or bankruptcy. It is also good to check for how long the broker is operating? Are there any significant changes in the way they operate over time, or any other red flags? Only if all these questions have satisfactory answers you can proceed to open your trading account and buy the stocks you want. One last advice never marry a stock! Even if you fell in love with a company and want to own its stocks forever, keep in mind the market conditions can abruptly change and you will need to take hard decisions to protect your funds. On the other hand, panic selling because everyone else is selling is also not the best decision in most cases. A balanced attitude with constant evaluation of the company financials and the broad economy will help you make the best trading decisions in the long run.