DMA CFDs: What to Know Before You Start Trading

Learning to trade DMA CFDs can be quite overwhelming at first, with new traders needing to master the trading platform offered by their DMA Contract for difference provider and of course develop a trading plan. Trading can easily be satisfying and pleasing if you take some time at the start to do your groundwork, below are some tips to assist novice traders who are getting started.

1. Develop a trading strategy.
A typical mistake new trader’s make is that they use an inappropriate trading strategy, or worse still, they've got no trading strategy at all. Adopting a trading strategy and using it on a consistent basis, provides a framework of discipline. It's also likely that this will deliver better results than a hap-hazard method or using a continuously changing number of techniques. Care must be taken when deciding on a trading plan. It would be a mistake to try trading a technique dependent on five minute graphs if you are unable to access your trading platform for much of the trading day. Likewise, it would be a mistake to implement a strategy dependent on monthly charts if your trading horizon is calculated in days or weeks.

Certain traders often believe that a more complex system is usually a better system. They develop systems that utilize huge numbers of inputs and require enormously complex calculations and algorithms. They often generate charts which are so heavily covered in indicators that it gets hard to see the price action. While some of these complicated techniques certainly can be profitable, the greater the amount of inputs and calculations they need, the more potential there's for something to go wrong. In some ways, a simple strategy is often superior (and a lot easier to follow with confidence) than a more complicated system.

One of many strategies used by numerous traders is the short trade. This is where a trader sells a CFD that they don’t currently hold in anticipation of buying it back again at a lower price in the future. While it can easily be argued that there is little difference between taking a long position or a short position, the short position might not be suitable for a conservative trader. In theory, a short position holds much greater risk than a long position. This is because of the difference in the highest potential downside for each type of trade. When holding a long CFD position, the worst potential move would be for the CFD to fall to zero and become worthless. For a short position, where losses will mount as prices rise, the maximum loss is unlimited. While holding a short CFD position on a share with a skyrocketing price is not likely, it is possible. It would be a mistake for a very conservative trader to trade on the short side, particularly without a stop loss order in place.

2. Learn how to use your trading platform.
It can be a steep learning curve when trading on a brand new platform however after you have spent the time and effort and overcome any lingering fears of technology you'll realize that this is crucial if you're to be a successful on line trader. It is no good waiting until you've got open positions and the markets start moving before you determine how to put on or adjust a stop-loss or take-profit order. You should ‘know’ how to maneuver around the platform and open, close or adjust orders without needing to look up the user guide.

You also need to plan for more severe situations. Think about what might happen if your internet connection were to fail or if your PC became infected with a virus and was not operating at its peak. As a preventive measure, it is wise to keep your CFD providers telephone number written down near your PC. It is also good practice to keep a list of your open positions so that you know what your exposure is.

3. Take responsibility for your trades.
Most traders closely check their open positions but there are those who make the mistake of not doing so. By regularly checking on your open positions you will know what your overall exposure to the market is and whether or not you are in profit or loss situation.

In addition to trading mistakes, some traders simply forget that they have placed certain orders, or because they don't understand the platform they find they have accidentally placed orders without meaning to do so. It is best to discover these errors as fast as possible by checking your open positions. Mistakes made when entering trades are more frequent than you might think. Traders often hit buy rather than sell (or vice versa) or enter the incorrect amount or even the incorrect ticker symbol. These are simple mistakes that can be put down to having a “fat finger”. However, if you take your trading seriously, you ought to make sure that you exercise the right amount of care.

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Matthew Jones is considered one of Australia’s most successful CFD traders, Matthew has been buying and selling DMA CFDs for over eight years with Australia's most popular CFD provider IC Markets. Matthew has mentored many novice traders and published several thorough guides and ebooks on DMA CFD trading. Get a hold of some of his free CFD education and get started trading now.

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