CFD Trading Strategies for Managing Risk with City Index

LONDON, April 4, 2012 /PRNewswire/ --

Traders can maximise their market involvement by only having to deposit a small fraction of the total trade value whilst maintaining the same heightened exposure through CFD trading.

With numerous benefits available to traders both new and experienced, including its high leverage feature, there is significant risk when trading CFDs; whilst this feature offers the potential for maximised profits, it also offers the potential for maximised losses.

The below CFD trading strategies will help you manage your risk and magnify your profit potential.

CFD Trading Strategy: Orders

When trading CFDs with City Index, you are urged to take advantage of their range of risk management tools.

The first step in managing your trading risk is to apply stop losses to your CFD Trading account.

Choose between a Standard and Guaranteed Stop Loss Order (GSLO); with the latter offering the greatest protection, particularly at times of market gapping and slippage.

A GSLO is an order to close out a position at a level prearranged by you, incurring a small charge* for the service.

For example, if you 'go long' and buy 1 CFD of UK 100 at 5900, but do not want to risk losing more than £200 on your trade, you could set up a GSLO at 5700.

Say that the market was to go against you and hit your GSLO of 5700; your trade would be automatically closed, preventing you from incurring any further losses.

*This charge can vary across different CFD markets. 

CFD Trading Strategy: Analyse

Understanding your chosen market is fundamental to your success.

Through technical analysis, you can analyse how your chosen market moves through historical charts, as well as more fundamental analysis; looking at economic factors such as financial news and events that could potentially affect a market's price movement.

For example, if a spike in crude oil occurs without your knowledge, and you start trading CFDs in British Airways shares; fuel costs will rise for the carrier and therefore may result in downward pressure on its share price, resulting in potential losses for you.

Through understanding a market, you have the upper-hand to react quickly and correctly when news emerges.

In addition, it can also help guide you when placing your stop losses and limit orders (see above).

CFD Trading Strategy: Plan

Before entering a trade, create a comprehensive trading plan; outlining where you want to take profits and more importantly where you are willing to take a loss.

This plan will combine all of the above strategies, in full detail.

Tip: Fix your stop loss order to your loss target and assign your limit order to your profit target.

Summary

CFD trading with City Index offers traders extensive trading education tools and resources to help them to start trading the CFD markets.

It is advisable to utilise a demo trading account with City Index before you start trading: http://www.cityindex.co.uk/learn-to-trade/demo-account.aspx

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, financial spread betting.

We constantly look to improve the performance of our platforms and expand our range of services. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support.

SOURCE City Index