Key Rules of CFD Trading in the Australian Marketplace

SYDNEY, March 7, 2012 /PRNewswire/ --

CFD trading provides an alternative to traditional dealing by allowing you to trade on live market price movements without owning the underlying instrument on which your contract is based.

Retail traders and investors now have the opportunity to benefit from institutional instruments and trading patforms at a global level.  

Potentially, this form of trading can allow traders to magnify their return on investment. However, both potential and experienced traders must remember that higher leverage can result in losses that could exceed their initial deposit.

With this risk in mind, the following guide will take you through the top 3 rules to help new traders prepare before placing a trade.

Rule 1: Knowing Your Market

With City Index Australia, you can access a wide range of markets, when you want, 24 hours a day, from Monday until Saturday morning.

If you choose to trade FX, index and commodity CFDs - you can trade commission free.

However, it is imperative that you choose a market that you understand and/or have knowledge of.

In the long run, this knowledge will help you take a clearer view on the direction of possible price movements within your chosen market, ultimately guiding your price actions, i.e. whether you choose to go long and buy, or go short and sell.

Something as simple as keeping up-to-date with the financial news, share prices, stock market changes and company reporting dates, can affect your trading choices.

Rule 2: Have Realistic Targets

Your trading targets should be realistic and must be put in place before you start trading within a comprehensive trading plan.

This plan should provide you with a general set of rules of which you can use as a reference point as you begin to trade.

Such rules should cover:
 
• Profit goals (by day, month and year)
• Size of the trade

• Maximum losses you are prepared to take
• Entry/exit point

The final two rules are imperative to managing your risk; these rules will affect where you place your limit orders and most importantly, your stop loss orders.

Rule 3: Manage Your Risk

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

A Guaranteed Stop Loss Order (GSLO) offers the greatest protection; guaranteeing to close your trade at the trigger value preset by you.

This protects you and your CFD regardless of underlying market volatility and gapping.

At City Index Australia, Guaranteed Stop Loss Orders incur a small premium (debited from your cash balance) upon confirmation of the order, and minimum distances apply.

Summary

Trading CFDs on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and you may not own the underlying asset. Limit risk by creating a plan, gaining knowledge through webinars and seminars and practicing with a demo trading account.

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.

City Index is a leading global provider of margined foreign exchange and CFD trading. As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. To learn more visit: http://www.cityindex.com.au/