Contract for difference – Using derivatives for better trading
CFD trading enables you to speculate on the future movements in a market‘s price – going ’long‘ if you think it will rise or ’short if you think it will fall. This guide shows you how to trade CFDs step-by-step, from opening an account to closing a position, and illustrates the process with example CFD trades.
The CFD, or the contract for difference, is a derivative product that lets discerning traders speculate on market instruments like commodities, forex and general shares. The main feature of trading with CFDs though, is that said trader doesn‘t have to take ownership of any assets associated with these market instruments. What’s more, traders can speculate on the movement of stock in either a growth or decline scenario, and potentially profit on the prediction made, either way.
When you trade CFDs (contracts for difference), you buy a certain number of contracts on a market if you expect its price to rise, and sell them if you expect it to fall. But the finer details can often be a little more complicated – especially since platforms and functionality vary from provider to provider.
If it is your firt time knowing what CFDs are, you probably know all of that already. You‘re here looking for advice on how to turn all of those words into one trading action in the CFD space. QuickTrade, via the premier trading platform MetaTrader 5, has the trading tool for you, the CFD trading demo – a great way to familiarise yourself with the complexities of CFD trading without investing money, in preparation for real world trading that’s profitable.
Understanding the CFD trading platform
So, CFDs can be speculated on, whether you predict a rise or fall, and they can be very profitable if that prediction works. Before you embark on a little foray into trying your hand on the CFD trading demo, there are a few other features to contracts for difference, and these can also be leveraged for some handsome returns. Lets highlight a few here:
Short and long term
As previously discussed, with CFDs you can speculate on the movement of stock both ways – rise or fall. Trading for a rising market, or ‘going long,’ you could earn a profit on a rising market stock, but obviously make a loss if the prices drop – similar to a traditional trade.
Conversely, if you speculate on a stock price falling, and you sell a share CFD, you could stand to make a profit here. If the price goes up, though, conversely a loss may happen.
Leverage
When trading with CFDs, you can leverage your buy-in. This means that you don‘t have to pay the full price on shares, but a percentage of it. This will help you distribute capital. Just be aware, though, that depending on when you open your trade, and the point you close it – and of course the performance of the stock – profits and loss can exceed your initial outlay, quite significantly. It’s vital, then, that before you leverage on a CFD trade, you understand the leverage ratio, and make sure it always falls within your trading budget, and your means.
Hedging
With a CFD trade, you can hedge against bigger losses on your portfolio.
If you think certain shares could suffer a short-term loss after a less than great market performance, you can offset loss by hedging your risk, and going short through a CFD trade. If those shares do indeed drop in value, the loss in your portfolio will be offset by the gain in that CFD trade – thats hedging.
Use the simulated CFD trading tools
Many CFD brokers offer products in all the world's major markets, allowing around-the-clock access. Investors can trade CFDs on a wide range of worldwide markets. MetaTrader 5, and others, have a CFD trading demo that houses all the features of a real-world market scenario. A CFD demo account can prepare you for the intricacies of contract for difference trading and better ways to become shrewder when it comes to chasing growth and profitability in the market.
CFD trading demo lets you trade in potentially realistic contract for difference instances. Learn how to speculate for success, leverage your accounts and hedge your investments before you really spend a cent.
How to open CFDs Trading account
The first stage is to choose the right broker for your trading. Register with it, create your profile and verify your details before submitting. Also ensure to provide all the necessary documents needed to be on board.
Note: when you‘re new to trading, the CFD trading demo tool is your secret weapon to put you on the front-foot and equip you for success, for when you’re ready to trade in a real-world scenario. With it, you get technical indicators on an easy-to-read dashboard, and charting tools to help you better understand market movement. Whats more, because a successful CFD trade depends on the instrument you work with and how it aligns with your trading strategy, a CFD demo will allow you to become accustomed with the instruments that best suit your investment goals, and before you enter live markets.
Leave a Reply