Please disable Ad Blocker before you can visit the website !!!

How to Become A Day Trader – The Ultimate Guide!

by CFD Guru Team   ·   

With the rise of modern technologies, people think of new ways to earn money.

Most of the time, the ways people seek include flexibility of one’s daily schedule and possibility to generate more income than an average corporate job offers.

Day trading can be one of the most lucrative careers nowadays if you do it properly.

Starting today trade isn’t a decision to be taken lightly.

It is possible to be successful and earn a good living trading only a few hours per day, but just like starting any other career, there is a lot to learn when you’re a day trading beginner.

How to start day trading?

Contract For Difference (CFD) trading is advanced and most popular trading strategies nowadays as starting as a CFD trader is much more relaxed than other types of trading and requires much lower capital to begin.

However, that doesn’t mean it’s so simple you should jump in and start trading without any prior information and planning That’s why I’ll provide you with all the insights and day trading tips you need to start trading CFDs successfully and generate profits even in your first month of trading.

So stay focused while I explain what is CFD trading, how it works and how to become a day trader.

What exactly is CFD and how does day trading CFDs work?

CFD stands for Contract for Difference and represents a contract between two parties – “buyer” and “seller” – demanding the seller to pay the difference between the current value of an asset and its value at contract time to the buyer.

In case the difference is negative, then the buyer has to pay instead of the seller.

CFD trading enables you to speculate on the rising or falling prices of fast-moving global financial markets (or instruments) such as shares, indices, commodities, currencies, and treasuries.

Trading CFD doesn’t mean buying or selling the underlying assets, such as physical shares, currency pairs or commodities.

What you are buying in case of CFD trading is a contract between yourself and the CFD provider.

When you trade CFDs, you buy or sell a number of units for a particular instrument depending on whether you think prices will go up or down.

A day trader’s job is to find a repeating pattern (or that repeats enough to make a profit) and then exploit it.

Essentially, CFDs are used by day traders to make price bets as to whether the price of the underlying asset or security will rise or fall.

A network of brokers organize the market demand and supply for CFDs and make prices accordingly.

The CFD is a tradable contract between a client and the broker, who are exchanging the difference in the initial price of the trade and its value when the trade is unwound or reversed.

In other words, CFDs are not traded on major exchanges such as the New York Stock Exchange (NYSE).

So how can you profit from bidding on whether prices go up or down?

To make things more clear, imagine you’re a day trader, who observes the statistics of financial assets.

Based on the trends you see, you develop your own expectations on whether the price of that asset will go up or down.

You buy the CFD when you expect an upward movement in price and you sell an opening position when you see the downward movement.

There are also other terms for “buying” and “selling” in CFD trading.

Be prepared to see phrases like “long position” (also known as simply “long”), which means “buying” a commodity, stock or currency and “short position” (or just “short”) meaning to “sell” your CFDs.

For every point the price of the assets move in your favor, you gain multiples of the number of CFD units you’ve bought or sold.

And each time the price moves against you, you make a loss.

The net difference between the purchase price and the sale price represents the gain or loss from the trades and is settled through your brokerage account.

Although it seems so easy at first sight, you should dedicate a lot of time to learn how to interpret the data and make the right expectations.

Why should you trade CFDs instead of stocks?

The first and most important advantage of trading CFDs is that when you invest in CFDs, rather than in markets like commodities or stocks, you can profit not only from upward going markets but from falling markets as well.

As long as your expectation of falling the market meets reality, you can celebrate your profit in your account.

As mentioned above, trading CFDs doesn’t include actually owning or delivering any physical assets, which is one of the main benefits that CFDs provide traders.

CFDs allow you to trade on margin, meaning you don’t need to pay 100% upfront as you have to do so buying stocks.

In most cases CFDs allow you to control much bigger positions with a fraction.

CFDs replicate all the financial benefits of share ownership.

Therefore, dividends and rights issues are replicated by crediting the account as if each CFD were an actual share.

For example, if someone owned a CFD on Starbucks, you would receive any profit or loss from the movements in the actual share price.

However, you would also receive any dividend payments from Starbucks that you would have received if you owned the actual stock instead.

Another advantage of CFD is that brokers allow investors to borrow money in order to increase leverage or the position to amply gains.

Brokers usually require traders to maintain a specific amount of balance on their accounts before they allow this type of transaction.

What do you need to start day trading?

The first and most important thing in starting day trading is, of course, a computer/laptop and access to a fast internet connection.

As the whole work of the day trader happens online, there’s no way you can go without a good internet connection, not to say without a computer or a laptop.

And as I’ve already mentioned a lot above, you’ll need to learn and practice a lot before starting betting your actual money on CFD trading.

Understanding the risks of CFD trading

As already explained above, trading CFDs is all about analyzing the previous data and expecting stocks, commodities or currencies to rise or fall and going “long” (“buying”) or “short” (“selling”) the assets accordingly.

In reality, sometimes even the most educated investors can be proven wrong as unexpected information, changes in market conditions and government policy can result in quick and unexpected changes.

And due to the nature of CFDs, even a small change may have a big impact on your decision and ultimately on your finances.

These unfavorable consequences affect the value of the underlying asset and as a result, the provider may demand a second margin payment.

In case margin calls can’t be met, the provider may close your position or you might have to sell at a loss.

Here’s a step by step plan to get you started as a successful day trader

Step 1. Learn

Getting as much information as possible and dedicating time to learning is crucial for every field in life.

And of course, trading isn’t an exception.

Although it’s considered as one of the easiest ways to earn big profits, it’s completely dependent on your knowledge and analytical thinking.

So focus and spare as much time as you can to learn the skills a successful day trader needs.

Step 2. Join eToro social trading platform

A second consideration is, of course, finding a good trading platform.

One of the most common social trading platforms is eToro.

eToro is the world’s leading trading platform, which made online trading and investing accessible to anyone.

This platform is optimized for beginner day traders as well as more experienced ones.

What is eToro social trading platform?

eToro social trading network is a great platform for any day trader, especially for day trading beginners.

As eToro’s aim is to make trading available for anyone, it is enabling its clients to benefit from the collective wisdom of its huge network of traders.

There are a great number of successful traders using eToro platform who share their strategies.

This is a great opportunity for new traders as they have experienced and successful day traders to rely on, learn from their experiences and implement the tips and strategies they use in order to pursue their financial goals.

Step 3. Have a trading plan

You learned a lot, joined eToro social trading platform, now it’s time to develop a trading plan by yourself.

It will regulate your trades and help you decide what to do at any given time.

Ideally, it will cover everything from what markets you want to trade-in, what kind of stop losses you will put in place and how you will protect your capital to continue trading.

Use all the knowledge and other successful investors’ experiences you keep in mind to create your own strategy that can get you to your financial goals.

Step 4. Be patient

Last but not least, being patient isn’t any least of importance as any of the steps above.

Success doesn’t happen overnight and chances are you won’t get rich in 2 nights as well.

However, being patient and persistent will definitely bring you success over time.

It’s important that you take any of your mistakes as learning opportunities, overcome any challenges you get on the way and continue your journey towards your financial goals.

Step 5. Repeat the steps above

The last tip for you is to never stop learning, always look at successful traders’ experiences, develop new plans and strategies to see which ones work best for you and never lose focus of what you do.