CFDs & Why You Need Them
CFD trading is extremely popular as it allows you to make a forecast about an asset’s price going up or down and earn money from this. Other reasons include:
- Affordability. You don’t need thousands of dollars to begin investing: a small sum will do.
- Easy access. All markets are open for CFDs: foreign exchange, commodities from gold to pork, stock shares of the world’s leading companies, indices, etc.
- Minimal fees. You won’t have to cover extra expenses that come from traditional trading.
- Profitability. If your prognosis is correct, profits will be relatively high, compared to a small investment.
Though the list can be prolonged, first let’s see what you need to begin your CFD odyssey.
CFD Trading: Where to Start?
Here’s what you need to know to become a successful trader in this field.
CFD trading is impossible without partnering with a brokerage firm. The broker is your provider who sells you these contracts, accepting your “bet.”
You should be persnickety when picking one. Here’s how to identify a good firm:
- License. They must have a license issued by the state: the United Kingdom, Cyprus, France, etc. That means a broker will have to work in compliance with the country’s laws.
- Technology. The best brokers offer multiplatform access plus popular trading tools: MT4, etc.
- Reputation. Closely research their reputation, look for client’s comments, and check for how long the company’s been in business.
Besides, a good broker provides a number of valuable tools, which include consultation and prognosis. The latter is especially useful when trading CFDs.
CFD market is profitable, quick, and, therefore, quite risky:
- Volatility. Markets are unpredictable. A sudden event can make your CFD lose half of its value or skyrocket “to the moon.” A competent assistant is key when it comes to accessing this risk.
- Leverage. In simple terms, it’s a borrowed capital that allows you to multiply your CFD profits. But if your prognosis turned out to be erroneous, your losses would be magnified as well.
- Counterparties. Remember: you’re not investing in a real asset. Instead, you make a contract with other people. They can fail to pay you if your prognosis is right. So again: picking a reliable broker who will prevent this threat is a must.
We suggest you learn more about CFD-related risks before trading.
Your two main instruments are long and short-term trading. Long is applied if you think that CFD will grow in price. On the contrary, shorting is best employed if you believe that the price will go down.
To make such a prognosis, you should learn about fundamental and technical analysis. The first gives you knowledge about the real-world markets and events that happen there. The second is about finding patterns and trends that apply to the historical prices of a certain asset. A reliable brokerage firm can help you with both.
CFD: Road to Riches?
With the right broker, trading CFDs is simple. But it does require a profound understanding of how markets work, analytical skills, and a bit of luck. Luck comes with knowledge and a reliable partnership.