Because of the massive government involvement in Dubai’s economy, anything that can disrupt its financial stability is treated with utmost importance. This includes commodities such as Currencies, Stocks, Commodities and especially Contracts for Difference (CFDs).
Most CFD brokers and funds offer services and products that mirror each other, which increases the chances of traders ending up on the losing side. If a market shows strong signs of moving in one direction, all brokers will likely follow suit instead of respecting their fiduciary duty towards investors. Because there is no official regulating body for these trading accounts, brokers can do as they please when providing this type of service to clients.
The UAE has tried to establish itself as a home for investors who want safe-haven investments but has recently become an unsafe environment due to increased corruption and greed amongst those supposed to protect investor interests. Until this changes, we will see traders steer clear of anything that might damage their portfolios, such as potentially harmful trading products like CFDs.
That is why brokers like Saxo Dubai market regularly publish tips on how to trade safely.
1: Get yourself acquainted with risk management
The first thing that an inexperienced trader needs to do is get acquainted with the proper risk management techniques. In this line of business, without sufficient knowledge and sound understanding of how to work it out, one tends to go overboard with the bullish or bearish sentiments he might be encountering from time to time by putting all his money on one particular strategy. That’s why it is often recommended that you use just half or even less than half of the amount that you may want to use to set up a trade.
2: Buy when the market goes down
The following vital thing you need to do is buy when the market goes down, not when it goes up. It is advisable that if you are looking forward to diversifying your portfolio with CFDs, try and go for buying on dips rather than making purchases at the top. There are high chances of making good returns if you manage to get yourself into a winning position during this phase. Now, knowing how long the downtrend will last is something that only experience can teach. However, it has been found out through studies conducted by market participants over time that markets usually fall by about 10%, or a minimum of 7%, before showing any signs of recovery. This is something that you can keep in mind while setting up a buy-on-dip strategy.
3: When it’s time to sell
The next step is selling when the market goes back up. While this may seem like the exact opposite of what has been mentioned earlier, this action does not reflect negatively on your trade if you can make gains by buying during lows and selling at highs. Some people don’t even bother sticking around for this final leg of the journey as they believe that there are much greater chances of making losses here than making profits. You need to be very careful while planning your exit from a CFD position because this is the stage where you may end up incurring huge losses if you are not careful enough.
4: Keep your emotions in check
Now, there comes a time during the trading process when an inexperienced trader tends to get giddy with his newfound sense of power and makes too much money too soon. He needs to be very careful, as this often taints his perception of how the market works. It is advised that one should keep emotions totally out of consideration while making decisions related to CFD trading because these tend to send wrong signals leading to bad outcomes. This can even lead to disastrous consequences like getting addicted to quick levels of success or becoming over-confident and taking higher risks than what’s advisable.