Before you risk your money, you should have a clear view of what you should expect from CFD (contract for differences) trading. Remember, trading is a business. It’s not a hobby and its not gambling. For you to be successful over time, you need to have an idea of why you are placing a trading and the most efficient way to execute your trades. You don’t have to watch the markets 24-7 to be successful, but you do need to protect yourself by having prudent risk management when you execute CFD trades.
What is a CFD?
Contracts for differences are financial products that track the underlying movements of specific assets. For example, a CFD on West Texas Intermediate crude oil tracks the tick for tick movements of crude oil. Instead of having to purchase crude oil or a crude oil futures contract, you can purchase a CFD which tracks the movements of crude oil. A CFD allows you to trade crude oil and provides you with a mechanism to buy and sell it using leverage.
You can trade CFDs on several different types of products. This includes currencies, commodities, equity shares, exchange-traded funds, indices, and cryptocurrencies. The benefits of trading CFDs are substantial. You only need to post a small amount of the total costs, when you trade CFDs using a margin account. You also do not have to worry about any operational aspects such as rolling forward your currency position.
What is Leverage
When you trade a CFD, you do it within a margin account. A margin account is a brokerage account that provides you with a loan to purchase and sell CFDs. When you take out the loan, you are doing this through a transaction. Your broker will allow you to purchase up to 50-times the value of an asset using a contract for difference. This means that you only have to post 1/50 of the amount of the asset you are purchasing when you buy or sell a CFD.
Determining What to Invest In?
There are several ways to determine what you should be investing in. Some people choose a certain investment based on emotions or go according to a recommendation made by a friend. Others may choose to follow the advice of an investment advisor or decide based on their own accord. Whatever you decide to invest in, we strongly advise taking it slowly and cautiously. You should consider using some educational material to improve your trading knowledge.
Pick a Trading Platform
You want to find a trading platform that is straight forward, efficient. A trading platform that you can use either through a mobile device or a browser based CFD trading platform is one of the most efficient options. This removes some of the clumsiness that takes place when you try to download a platform. You should consider test driving the platform by using the broker’s demonstration account, which will allow you to see if executing transaction is straight forward. Before you place your first CFD trade, make sure you learn about the markets you are trading, feel comfortable with the platform, and determine the assets that will give you the best chance to make money.