As many people are already make a living out of trading CFDs the answer to the question has to be ‘yes’. However, trading CFDs is a risky business with the very real prospect of losing the cash amount that you start out with. At this point it’s worth considering your motivations to trade, your chosen risk return ratio, and your available resources. If income stream is your primary aim, then a fundamental factor influencing your approach is that the same absolute cash returns can be made applying a lower risk strategy to a larger capital stake or alternatively adopting a higher risk/return approach on a smaller investment.
Developing a structured approach to trading is commonly regarded as something that might mitigate the risks involved. Popular advice is to start trading in small non-material amounts and gain a real feel for the market. Demo accounts can help, but a live account exposes you to a more realistic set of emotions. This is a good time to consider different trading strategies and which market or instruments work best for you. Whilst general market knowledge is always beneficial there is much to be said for specializing in one area. Try to understand why, for example, trading Crypto in sideways markets might work for you (now) but be aware of how markets change and how when they do your strategies might need to adapt.
Spending time trading in small sizes can also help iron out some bad habits. Are you trading too much? Wearing away your capital amount by churning through trades is commonly held to be a common failing. Are you managing your risk appropriately? The subject of stop losses and where to set them requires more thought than most people give to it.
Other reasons exist for setting up a CFD account. Exploring these whilst trading in very small sizes can help build a bigger picture and allow you more time working on getting things right before scaling up.
Trading a CFD account allows an insight into the financial markets and investment returns. It might be you are just inquisitive and want to see how you would get on with trading. If you have other market-based investments, such as a pension, which is being managed by an institutional investor then trading your own account, even with ‘pennies,’ can allow you to benchmark your percentage returns against theirs. Once you’re traded your own account and have managed to make a 5% return using a low-risk strategy you might have an opinion on the costs you are paying for expert management advice.
Alpha and Beta are two more subjects to consider and try out in small size trading. Alpha is the ability of a trader or strategy to beat the market. Beta is a measure of the risk associated with trading the general markets. Institutional investors often focus on generating Alpha for their investors as it generates great headlines and big bonuses. Beta when considered as ‘buying the dips’ might not be as eye-catching but can offer significant returns for the person, you, who is actually putting their cash into the market.