CFD Trading Explained
Contract-For-Difference, or CFD is a financial derivative that gives traders the opportunity to profit from price movements rather than owning an asset. With CFD trading, you don’t buy or sell the underlying asset (like a physical share, currency pair or commodity). You buy or sell a number of units for a particular instrument depending on whether you think prices will go up or down.
For every point the price of the instrument moves in your favour, you gain multiples of the number of CFD units you have bought or sold. For every point the price moves against you, you will make a loss.
How to start trading CFD with an online broker
To kick things off you need to find an online broker which provides a CFD online trading platform. Our website, anyshareprice, will help you with that as we share our top reviewed platform.
As with other investment related opportunities, you need to have a starting capital investment to deposit onto your broker. Several CFD brokers online offer demo accounts which are also helpful for first time traders. When trading in demo mode you can get used to the website and the trading mechanics. You can do this without affecting your real money balance. We;d highly recommend testing in demo mode first.
The next important step in trading CFD is to select the market you;d like to trade. CFD trading platforms allow you to trade on share prices, stock prices, as well as other markets in Forex. On our website we cover movements in share prices, stock prices, and forex which can be helpful for you to find your market.
Unlike regular trading with shares, with a CFD it is possible to trade and make a profit under any given scenario. If you think the market is going to appreciate, then you can choose to buy, and profit when the market goes up. In trading terms, this is called going ‘long’. Alternatively if you think the market is going to depreciate, then you can choose to sell, and profit when the market goes down. This would be called going ‘short’ in trading terms.
The next step is to choose the number of units you’d like to trade on the CFD. The contract value of the trade is then calculated by taking the lower price from the price range quoted, multiplied by the number of units. To open the contract you will only need to put down a margin deposit which is usually a low figure percentage of contract value, say 5%. Online CFD trading platforms also enable you to lower your margin by adding a stop-loss to your position.
Benefits of CFD trading
If you are a new or aspiring trader, the biggest benefit you can get from CFD trading is its accessibility. Since you do not need much capital to start, CFD trading is ideal for almost anybody. Anyone who has some cash to begin trading.
Even if you are just starting out, most CFD brokers give access to their demo portals. In most cases for free! Using these accounts are a very good way to learn the trade, and to become accustomed with the relative broker’s interface.
Having said that, it would also benefit experts in the field who may be interested in a new market. For the pros, CFD can provide you with a breath of fresh air. With the minimal losses and easily managed risks, you can do CFD trading to escape high-tension trades from non-derivative financial instruments. It is also an excellent alternative to binary options.
Benefits of using an online broker
CFD brokers have access to many markets, almost all in the world. This is a another advantage as it will allow you to expand your reach into various markets. You may consider entering any market.
With CFD trading you can profit two ways. If the market is appreciating, you can earn. If the market you chose is depreciating, you can still earn. It all depends on where you place your money and correctly analysing the current trends.
It is worth noting that with most brokers offering low minimum withdrawals, you can withdraw all your money once you want to quit. This due to the fact that you are not buying actual assets, but just CFD units. As long as you don't get hooked to CFD trading, you can trade and profit short-term. You or the market/company you chose will not owe anything.
If, however you decide to keep your funds with a broker and let it appreciate there, you could qualify for additional benefits and features. Not all brokers offer such optional features and benefits. Please remember that most CySEC-regulated brokers are not allowed to provide bonuses.
Take a look at any share price here.