Tools of the Trade - The CFD Trade

It doesn’t take long to find a long list of disaster stories with investing. Some of these investment catastrophes will just be down to bad luck, but the majority will be down to people neglecting to use the proper tools of the trade. Luckily, there are many trading platforms that give you the tools you need to become a successful CFD trader.

Investment Plan

Your first, and most important tool, is the investment plan. Without an investment plan, you are nothing more than an educated gambler. Every win you have will be down to luck, and a lot of your losses will have been avoidable.

Investment Diary

Your second most important tool is the investment diary, tracking what you did, why you did it, what went well/badly, and your emotional state and thoughts at the time. Investment diaries, and the looking through of them, are an integral part to developing as an investor. Without an investment diary, you will still develop, but it will be slower, as you will not have the ability to look over your exact thoughts, feelings, and justifications, to figure out what went wrong.

Investment broker

Your third most important tool is your broker. Okay, so that is not always strictly true – sometimes your broker can be what causes you to fail, so to put it more accurately, “your third most important tool is a good broker”. A good CFD broker will give you an important edge, but more significantly, a bad CFD broker can lose you huge sums of money.

CFDs, when compared to other financial vehicles, are relatively laxly regulated, meaning that choosing a reputable broker is vital. It’s a good idea to shop around for your preferred broker before committing, and thoroughly investigate any broker you are thinking of using. Many brokers will have different platforms that will offer different different trading experiences, so it’s worth looking into how effective their platform is for trading. There are various places that do CFD broker comparisons, and these are valuable, but it’s worth reaching out to your network to get advice, or spending some time on investment forums.

Mass media

Your fourth most important tool is the Newspaper, or the TV, mobile phone or computer – whatever you get information about current affairs from. You could be a world class financial trends analyst, but if you don’t know what’s going on beyond the maths, then you are at a significant disadvantage.

To use a real life example of financial upset, the markets never predicted that Britain would vote to leave the UK, even in the days leading up to the vote. In fact, as Britain approached the day of the result, the markets recovered based on the expectation that it would be a Remain vote. A handful of investors however realised that the margin of error in the polls could still result in a Leave win, and that there were significant unaddressed issues with the way polling companies were operating. These investors were able to save themselves from a significant loss, or even make a profit, when the rest of the market was in freefall.

Ultimately, when looking to get involved in CFD trading, you should make sure that you have considered all of the above in order to become an effective trader. Stick to your plan and diary, and you’ll have a much better overview of where your money is placed, where you’ve made money and where you should invest further.