If you already have some trading experience on the Forex market and want to master a new way of making money, pay attention to CFDs. It’s a tool that gives you ample opportunity to make a profit, provided that you know its basic principles well. This short guide will help you understand the essentials and learn how to trade CFDs online.
CFD stands for Contract for Difference. In simple terms, this tool allows you to bet on the fall or rise in an asset value without buying it. You have a wide range of areas: stocks, indices, bonds, cryptocurrencies, commodities, and so on. One of the main advantages of CFDs that makes them attractive is the minimum start-up capital requirements. Other benefits include the following:
- Quick profit from short-term price fluctuations;
- High leverage;
- Access to different markets from one account;
- Hedging opportunities;
- Short and long positions available.
Where to Start
Despite the large list of advantages, CFD trading is associated with great risks. Here are a few steps a beginner trader should take to be successful in the CFD market.
1. Improve your knowledge
Knowing the basic tools and principles of their work is the main key to good earnings and minimal risks. Even after the first few successful trades, you shouldn’t be satisfied with what has already been achieved. This market is very dynamic, so you need to be prepared for any changes.
2. Choose a broker
Before making your choice, carefully study the sites and reviews of a particular broker. As CFD trading is a relatively new type of activity, it is poorly regulated in some countries. That is why it is important to choose a trusted intermediary who offers reliable service and a wide range of trading instruments.
3. Use a demo account
You can put the acquired knowledge into practice without financial loss using a demo account. Almost all reliable brokers offer this opportunity, so do not neglect it. You can practice performing basic actions, work out the strategy, and adjust it depending on the results.
4. Pick a trading platform
It should be a convenient and easy-to-use platform that will display all the info you need: price changes, current news, technical analysis charts, etc. With the help of demo accounts, you can try all the advantages of a trading platform and understand how it suits you.
5. Develop a plan and strategy
With CFDs, you can access a wide variety of exchanges. You need to choose a direction (-s) and stocks for investment. Your strategy should include a step-by-step plan, a list of goals, and a timeline for achieving them. Also, consider the possible losses and indicate the amount that you are ready to lose.
Work on Discipline
Since CFD trading involves risks due to high volatility and leverage, you should psychologically prepare yourself for the possible losses and learn to perceive them as an experience. Try to avoid overtrading by opening too many positions or investing all your money in one share. Pro traders recommend following the market news and studying trends to make successful investments.