Day trading online with CFDs (contracts for difference) is an increasingly popular way for entrepreneurs to start a home-based business. Not only is it potentially a great source of income, but it also helps sharpen your analytical and decision-making skills, which you can then apply to other areas of your life, and use on your CV. If you haven’t discovered CFD trading yet, but are interested in participating in financial markets, this article will give you an introduction to day trading, plus strategy tips.
What Is Day Trading?
Day trading means the buying and selling of a financial asset within one trading day. An online day trader will find trade opportunities, enter into the market and jump out before the market closes for the day, to secure her profits. Day trading strategies can be used in many markets; however, the most common and suitable markets for day traders include the Forex market and stock market.
Day trading can be an exciting way to earn income; nevertheless, it’s not easy because taking advantage of small price movements in volatile markets like Forex requires you to master trading skills, and to be well-funded. Therefore, if you want to live like a day trader, take your time to learn, practise trading, and test your day trading strategy carefully before trading for real.
What Is A CFD?
CFD is short for Contract For Difference. It’s an instrument that lets you speculate on the price movement of a financial asset: up or down. Although this may sound complicated to a beginner, most online brokers provide comprehensive guidance and have clear, easy-to-use interfaces to help new traders feel comfortable quickly.
There are many benefits when using CFDs to day trade, such as:
- You can trade without having to own the actual asset.
- You can use leverage to magnify your gains; however, it also means your losses will be more if your prediction is wrong.
- Day trading via CFDs is low-cost.
- Most CFD brokers offer a variety of tradable assets.
What Are Characteristics of A Day Trader?
To become a day trader, you must have a solid trading knowledge foundation. Below are the prerequisites to day trading:
- Trading knowledge and experience: day trading is not for novices, so don’t try with real money if you think you don’t have enough trading knowledge, experience, and confidence yet. Use a demo account until you’re ready to trade for real.
- Sufficient capital: day trading often requires a large amount of capital. However, don’t risk more than you can afford.
- An effective, carefully-checked strategy: trading without a strategy is suicidal. Therefore, spend your time developing and perfecting a day trading strategy. Remember to test it carefully before you go live.
- Strict discipline: Success is impossible without discipline. If you have a good day trading strategy but don’t stick with it, you won’t be successful.
Is It Possible To Make a Living by Day Trading?
There are two primary types of day traders: Institutional and Retail. Institutional traders are professionals working for companies, with ideal trading conditions: a direct connection to a trading desk, professional real-time software, large amounts of capital and leverage, etc. Meanwhile, retail traders who trade with their own money usually have limited capital, resources, and tools. They often use technical analysis and swing trades to collect profits on small price movements in highly liquid assets.
Most of us are retail traders, so it’s hard to compete directly with institutional traders. However, it’s not impossible. You can still become a successful day trader if you:
- Choose a market that you have a good understanding of;
- Control the size of your investment and leverage effectively;
- Use stop losses;
- Remain focused when you trade;
- Improve your strategy using a journal;
- Test your strategy carefully with demo accounts;
- Keep learning and moving forward.
Day trading via CFDs has democratized the world of online trading, opening up work from home business opportunities to many people, where once trading was mostly the preserve of professionals working for financial institutions. However, beginners should approach day trading with caution. Short-term price movements are usually hard to predict, therefore, mastering day trading techniques requires lots of effort and time. If you decide to become a day trader, choose a reputable CFD broker and start practising day trading on demo accounts. Don’t forget to follow the abovementioned tips. If you are persistent enough, you’ll eventually become a successful, and profitable, trader.