Quick Guide to CFD Trading For Beginners
The financial market offers a wide range of options that traders choose from for them to make money according to their preference. The most common markets being traded nowadays are Forex, indices, commodities, and CFD. As for CFD trading, this market isn’t quite known and there is still a huge number of traders who don’t understand its system. But in the next 3 years, this market is expected to grow by about 9%.
What is CFD Trading and How Does it Work?
This question is mostly heard among people who wanted to try on CFD but don’t know where to start – What is CFD? CFD stands for Contract For Difference which allows the trader to predict the movement of the market. CFD is also quite popular among traders who are interested in different financial markets.
Moreover, profits are quick here. You are not to keep your positions long, as there is an 80% limiting positions just within minutes.
What are the main features of CFD Trading?
Different features of CFD entice people’s attention. But to find success in trading CFD, you need to understand these key features so you will be able to use it effectively. These features include hedging, short and long trading, and leverage and margin.
Leverage and Margin
Leverage refers to the resources that you need when you trade. Through this leverage, you can either open a larger position even without investing so much on the capital amount. If you want to engage in a market where leverage is available, there is this so-called margin which is the extended limit of the leverage. In CFD, they allow the maintenance margin as well as deposit margin.
Short and Long Trading
Traders go short when the market is falling while they trade long whenever the prices in the market are rising. This approach is allowed in CFD, making this market so unique and capable.
Hedging is the limiting of losses for an open trade position deemed for the possibility of losses. Hedging is quite popular in the financial market because traders were able to reduce losses as they use it in their portfolio. For volatile commodities, investors can hedge up to 50%.
How Does CFD Work?
Understanding how CFD works is crucial to your success. There are four key features that you need to know when it comes to how CFD works.
The Size of the Deal
Every deal done in CFD has a size. Standardized lots show the size of the contract based on the underlying asset.
Profit and Loss
Both profit and loss are also available in CFD trading. But in this market, you can easily determine your profits or losses by multiplying the total number of contracts with the close and open points.
The CFD Trading Duration
No expiry date is set in trading CFD. The items here are being bought and sold at a particular time.
Spread and Commission
The Spread in CFD is the difference between the buy and sell price while the Commission is the speculated price of traders in the market.