Simply put a CFD or Contracts for Difference trade refers to an exchange in the difference of the cost of a certain financial instrument within an appointed time frame. The financial instrument in question is usually either a share, commodity, indices, foreign exchange or treasuries.
Over the years, CFD trading as developed a reputation for being one of the riskiest forms of online trading and usually taken on by experienced traders who have ample experience and intuition about the ever changing global markets. To get your career underway as a CFD trader, there are some crucial factors to get right before hand.
1) Finding the Right Broker
This decision is largely a matter of the authenticity of service being offered as well your individual preferences as a trader. Conduct a detailed review of all the brokers you are considering. Pay careful attention to the services they provide for their clients, the type of markets you are looking to trade in and the spreads and commissions charged by each broker on those markets.
2) Trading Platforms
Make a thorough assessment of the trading platform your broker is offering. It should be easy to access, easy to read and swift at sealing trades for you. It should also be updated in real time about the changes in price and the availability of new open positions. The platform should also be practical enough to be accessed by your smartphone so that you can stay updated on the progress of your trades while you are on the move.
3) Choosing a Market
With CFD trading, you will have access to a global assortment of markets. With the help of the trading platform as well as the kind of trades that you specialize in, you will be able to select a suitable market to trade in.
4) Go Long or Go Short
There are just two kinds of prices that are quoted in a CFD market. The first being the selling price and the second being the buying price. The difference between the two is known as the spread. Depending on the price of the underlying instrument, the price of your CFD will be quoted. If you are guessing price of the market will go up, you will buy the market or Go Long and if you think the price will decline, you will sell the market or Go Short.
5) The Size of Your Trade
Whether you are dealing in shares, commodities, indices, foreign exchange or treasuries, the value of a single CFD or share will depend on the underlying instrument. One of the main things to consider when trading in CFD is the influence of leverage. CFD involves trading on margin, which means only a tiny percentage of the full asset is exposed at a given time. So only the equivalent amount of that portion is invested. However, leverage can exponentially increase the resulting profit or loss to account for the value of the entire asset so that while a profit can be really sweet for traders, a loss can end up costing them far more than their initial investment. So it is important to ensure that you have enough funding in your account to make up for any loss you might incur or else do not use leverage altogether.
6) Keep an Eye on the Trade
After placing a trade and announcing a time, whether you make a profit or a loss depends entirely on the where the market will go. So long as the trading platform you are using is accurate and in real time, you can open more trades and close existing ones going by your chances of gaining a profit or loss.
7) Closing the Trade
Closing a trade is simply a matter of selecting the ‘close option’ on the trading platform. Upon closing the trade, you will be immediately informed of the resulting profit or loss and the difference in your account funds.
Start With CFD Trading Now
CFD trading is a very delicate and tricky process in the online trading scheme. While no one participating is in real control of their earnings, those traders who are experienced and highly skilled likely stand a better chance of making successful trades than novice traders. If you manage to fulfil the above criteria, you will be in with a strong shout.