An introduction to CFD trading and Sipps

An introduction covering the basics of what CFD trading and SIPPS pensions are all about.

CFD trading

CFD trading at its most basic level involves backing your judgement whether a financial product is likely to appreciate or go down in value. This judgement can come from experience, you may have heard something on the grapevine or simply trusting your senses.

Youre trading on margin and that gives you the advantage of leverage meaning the potential of magnified profits, but also losses too.

The vast majority of all CFD trading take place on sophisticated online trading platforms so brokers are often not required in these investments.

While CFD trading is a modern way of taking a position on the financial markets at a fraction of the cost of more traditional methods, the underlining principles of both are very similar.

Here are 3 steps to successful CFD trading:

The trend is your friend

For sustained success and greater peace of mind, the majority of traders prefer to go with trends. Trying to secure a quick trade against a short-term trend can sometimes be a bit like hailing a cab at rush hour and turning up late for that meeting as opposed to booking one in advance and arriving calm, collected and on time.

Run with your profits

Knowing when to take profits and when to let them run takes years of experience. With CFD trading a good way of safe guarding against a downturn is by setting a trailing stop-loss. As the trade moves in your favour you should move your trailing stop-loss accordingly to lock in profits. Its always good to set a target for your profit on any trade.

To help you recognise when a trend is reversing its an idea to use pattern recognition tools which will help you spot the signals on charts.

Cut your losses

Youve done the research, spotted and identified the trend and all the signs are there for a good profit. You place the trade but before you know it the trend is reversing and you begin to lose money. What do you do? At this point, even seasoned traders are likely to hang on in there waiting for the turnaround, thinking that their judgement is correct. Its not spineless to pull out of a losing position, its just smart. But if you do stay in, dont be surprised to find yourself following the losing trade right to the bottom.

Just as with profits its a good idea to set a maximum loss on any trade you place.

SIPPS

SIPPS stands for self-invested personal pensions. They are the DIY of pensions, or at least that is how they started out. As the name suggests SIPPs Pensions are personal pensions that an individual has built up using financial products that they have found and decided to invest in. Today more and more financial advisors are offering products to support people who want SIPPs Pensions. This means that whilst you ultimately decide how the money in your pension pot is invested, you have a financial advisor on hand to help you to find and choose financial products that suit you.

With SIPPS pensions you can choose to invest in commercial property, stocks, bonds, shares, gold, traded endowment policies, ground rents, futures and options and several other financial products.

Tax and SIPPs Pensions

For tax purposes SIPPs pensions are treated the same as personal pensions. If the money you put into a SIPPs pension has been subject to income tax then you get a rebate for that tax. The rebate is added to the money in the pension. Any income from a SIPPS pension is not taxed and there is not capital gains tax.