Learning CFD trading does not require anyone to have special skills or knowledge in Math or Physics to excel. Trading CFDs is very simple. The good news is that if you know how to trade stocks, you can easily trade CFDs too. This article will show you how to learn to trade CFDs the easy way.
Trading CFDs is like trading shares except that you only need a small amount of money upfront to get started. Also, there are a couple of key differences that you need to keep in mind.
Trading CFDs involves leverage. That is a major CFD risk you’re faced with. There is a possibility that you could lose more than what you have in account if you over leverage your account. Say if you have $10,000 cash in your account, you could take $200,000 position at 5% margin. But in cases when that position gapped against you and it moved 10% overnight, you would lose $20,000. That is your $10,000 and another $10,000 you owe to your CFD Broker.
CFD finance is another subtle difference between trading stocks and shares. Essentially, this is the cost of borrowing the money to hold your CFD position. Your CFD broker loans you the money and they will charge you a small financing rate for that privilege. Usually, this works around 3% above the current cash rate of your country. For example, in Australia, the cash rate might be 3%. Your CFD broker will then charge you 6% per annum that is calculated as daily rate.
CFD or Contracts for Difference is gaining popularity among investors these days as a good alternative to share trading. This reality lets CFD providers grow as an industry. Traders would want the best deals from their CFD providers. However, one cannot have everything in just one package. Thanks to the stiff competition in the market, CFD providers are continuously upgrading their platforms and services. These special factors will help you determine the best provider you’ll be using.
And because there are so many CFD providers you can find with a simple Google search, you need to choose carefully. Ask yourself the following important questions before plunging ahead.
- What do you want to trade? Check out a number of CFD providers and the number of CFDs available to trade. Examine the current list of CFDs offered by the CFD provider you intend to trade with.
- How do you wish to trade? Are you looking to trade CFDs through a market Maker or through a Direct Market Access?
- What is the trading platforms and the features of the CFD provider you chose to trade with? The scope may include commissions or brokerage, margin requirements and also the order types that will guarantee convenience with your lifestyle and time.
CMC Markets , the leading CFD and forex trading provider in the UK today, for example, have invested heavily in the infrastructure of their award winning platform.
- Do you want guarantee for stop losses? If so, find a provider that offers such features as not all CFD providers do. One of the benefits you can enjoy from CFD trading is that you can do things you can’t do with shares like guarantee in your exit price.