The first thing to remember is that trading is not a level playing field. Professional traders have a lot of advantages over the private trader. Despite the accessibility and availability of CFDs to retail investors nowadays, in general, the pros still win more often than the non-pro traders. Why?
The pros have:
Better access and information flow – fund managers and institutional players spend significant amount of money to access market information. Most of these institutions are backed by large teams of researchers and analysts who constantly monitor the market. Professionals will almost certainly have a lot more information at their fingertips (or at the end of a telephone) than private traders. They will know a lot of people in the market and can formulate views by speaking to others.
Work as part of a team – institutional players usually have researchers, analysts and other market specialists that work as a team to maximise profitability. The typical private trader is just that – a single person. There is nothing wrong with that of course, but a private trader has to do everything from making the tea to executing the trades. Often working in a team can help professional traders – much of the work can be delegated.
Huge amounts of capital – This is of course the single biggest advantage that a professional has. Often the money is not their own and that can make trading easier on occasions. Due to the nature of their business, fund managers and other institutional traders have easy access to millions of dollars of external capital not available to retail traders.
While institutional traders and fund managers have inherent advantages over retail traders, there are ways to level the playing field. If you are to treat CFD trading as a business (as you should), you must ensure that:
You have enough capital – There’s a well-known saying among traders that goes: “Don’t trade with money you cannot afford to lose.” Sometimes this is called ‘scared money’. If you are to trade (CFDs or any other instrument), make sure that you have enough capital and that you are not trading with money you are not prepared to lose.
You get real time charts and other tools – Access to information is vital in trading. You have to know what is happening in the market particularly if there’s a lot of volatility that may provide profitable trading opportunities. You have to know the exact price movements to be able to trade the trend. End-of-day data download will be useless if you’re trying to catch intra-day price movements.
You have the fastest Internet access you can afford – Broadband access has never been more affordable, so take advantage of this technology to enhance your trading.
You pay lower/lowest commission – Commission is a business expense and must be kept to the minimum. Even large institutional traders seek ways to pay the lowest available commissions.
You have a fast computer – Prices of computers have gone down considerably and you only need to spend a few hundred dollars to have a fast computer with enough power and storage capacity. Invest in a reliable computer and do not let technology get in the way of your trading profitability.
You use a professional research service – While you could have an information overload given the amount of information readily available on the Internet and other sources, it is wise to use a reliable research or newsletter service that may provide some guidance on specific trades or markets. Use these research services as a starting point to do your own research.
You can find out more about how to trade CFDs in our free CFD Guide
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