For newbies starting to trade with CFDs, the market can appear intimidating and daunting. But it doesn’t have to be this way. You only need to pick the right path, and soon you can become an expert in trading CFDs. Let’s start with the basics.
What’s CFD Trading?
So, before you begin trading CFDs, you need to learn what CFD trading is all about. Over the last few years, CFD trading has experienced rapid expansion after the introduction of online CFD trading. The profitability of CFD trading has attracted numerous trading brokers and clients from different corners of the world.
CFD Meaning
The contract for difference is among the most popular derivatives in the market today. It allows traders to margin trade, thus exposing them to a variety of financial markets. When trading with CFDs, you don’t purchase the asset that you want you to want to trade. Instead, you trade units for a given asset depending on whether you think its price will rise or fall. Therefore, a CFD is a contract between a broker and client, agreeing to pay the difference in the value of the underlying asset.
Trading CFDs helps investors to benefit from a potential decrease or increase in the market value of a particular asset. The best thing about trading CFDs online is that you don’t need to own the actual asset. You will only get the net price between the time you entered the contract and the time you exit.
How Do You Stand to from Benefit Trading CFDs?
Unlike many other trading products, CFDs are leveraged products, which means that you don’t need the entire amount to open a trade. For instance, if you want to trade in an asset valued at $6,000, you don’t have to deposit $6,000 in your trading account. Instead, you will only deposit a fraction, say $300 into your trading account.
Trading CFDs also enables you to access to the major global markets from one platform. Many brokers provide access to major financial markets, currencies, international stocks, indices, commodities, and so much more. Therefore, you can access any major financial market from one platform as long as it’s open on an exchange. Lastly, CFD traders keep all the trading profits for themselves. You don’t have to pay stamp duty or any other taxes on trading profits.
How to Get Started with CFDs?
Nowadays, trading in CFDs is a breeze. If you want to start trading for yourself, you will first need to sign up with a broker, then make your first deposit and start trading. CFD trading gives you a chance to make profits by trading with fast-moving instruments such as indices, shares, commodities, treasuries, and currencies.
Choosing a CFD Broker
CFD markets have increasingly become popular over the last few years owing to their profitability. Even as these markets become popular, we don’t have a unified global regulatory body to oversee their operations. That’s why we have many CFD brokerage houses sprouting from every corner. It’s therefore paramount to enter into a contract with a reputable CFD broker such as Saxo Bank, which is among the best brokers in the market today. When looking for a CFD broker, ensure that:
1. They are regulated
Regulatory agencies from around the world have the responsibility of vetting and monitoring brokerage firms in their countries. Do not enter into a credit with unregistered CFD brokers.
2. They are Transparent with their Trading Costs
It’s critical to choose a CFD broker who is open about their trading costs. Some CFD brokers may have competitive spreads and commissions and then sneak additional charges that eat up your profits.
3. They Have a Track Record
Again, it’s essential to vet the reputation of your CFD broker before entering into a contract with them. Check out customer reviews from different CFD brokerage review sites to ensure you have the right picture of your CFD broker. To be on the safe side, always go for a broker with more than five years’ experience in the industry.
