Contract For Difference or simply CFD is the buy and sell of CFDs. Since it enables traders to speculate on the movement of the financial market, it is called a derivative product. It can be traded on financial markets including forex, commodities, shares, and indices without the need to own an underlying asset.
With CFD, what you need to pinpoint is the price difference during the opening and closing of the market. One most favored advantage of CFD is the fact that you can speculate the price movement and benefit if your forecast is right while loss when it is wrong. Though it sounds simple, trading CFD is actually confusing and tough, especially to new traders.
Understanding the pros and cons of trading CFDs is very important to succeed and attain continuous profits. Below are some important facts and information to help you choose the right instrument to use and how you will tailor your trading style.
Contract Engagement Between Broker and Trader:
CFD trading involves a contract between a trader and a broker, also referred to as buyer and seller respectively. There is an agreement to a contract that predicts the price in the financial market on a given condition. Traders are the ones to speculate but it is important to mention that there is a distinction between traditional trading and CFD trading. In CFD trading, you can speculate on the price but you won’t have to own an underlying asset. Since you don’t own an underlying asset, you can avoid shouldering additional costs and some disadvantages presented with traditional trading.
How Does CFD Trading Works?
Basically, the gains and loss of CFD trading are calculated based on the price difference as to when the contract was entered and exited. The broker will pay for the difference while you predict the movement of the market. If your prediction is correct, the broker will be at the losing end but if your prediction is wrong, you will pay for the difference and the broker will gain profit.
How To Trade on CFD:
- Pick the right instrument: Choose the right underlying asset and you will surely gain profit. It can either be cryptocurrency CFDs, commodity CFDs, share CFDs or index CFDs. If you are not sure which one to choose, you might want to check out some of the guidelines available online. Additionally, find the market that is on top of the headlines, these will also help you make the right decision on which underlying asset to take.
- Pick your position: After deciding the kind of CFD to trade, it is now time to pick your position. You may use different indicators, signals, and charts to help you decide on the kind of trade to open.
- Pick your platform: Choosing the right platform is also very important as they could possess the right things to suit your trading style. Don’t worry, there are more than 50 charting tools and technical indicators available nowadays. You may also want to keep track of your trades on your mobile phones. This will allow you to keep track of your gain and losses, real-time