CFD’s are an existing way to trade. Contracts for difference, or CFD’s as they are more generally known; let you go long or short on thousands of markets, without needing large amounts of money to get started. Quite simply a CFD, is an agreement between two parties to exchange the difference between the opening price and closing price of a contract. Many professional online trading platforms, such as XTrade Europe, offer CFDs – which are derivatives products that allow you to trade on live market price movements without actually owning the underlying instrument on which your contract is based.
Why CFD’s are winners
You can use CFDs to speculate on the future movement of the market prices regardless of whether the underlying markets are rising or falling. This means that you can go short (sell), allowing you to profit from falling prices, or hedge your portfolio to offset any potential loss in value of your investments. Moreover, with over 12,000 markets to trade, you can gain exposure to markets you may not have had access to before. Professional trading platforms such as XTrade Europe offer indices, currencies, commodities and more. The use of stop-loss orders also helps CFD traders to reduce the impact of unfavourable trades, while successful trades are set to run further. The difference between running gains and restricting losses is central to successful trading over the long term.
Where to begin
Getting started with CFDs is relatively easy, providing you have some experience in trading. New traders should take the time to research the potential advantages and drawbacks of trading CFDs, before committing money to the market. Don’t forget that as with any financial investment, all risks should be understood and calculated before beginning to trade. Educating yourself on correct trading methods should be easy – especially when you have tools available to you such as XTrade Europe’s Academy. There are many different CFDs and online trading platforms should offer you have a wide variety of available options tailored to your individual needs.
Choosing the right CFD
Strategy: Never trade on intuition alone. Many novice CFD traders have the benefit of being able to draw on the experience of many successful traders, and many tried and tested CFD trading strategies. Each strategy represents a way of analysing market moves, spotting patterns and calling trends. You must remember that no strategy is fool proof. You need to work out a trading strategy that suits your needs as an investor, your attitude towards risk and your long-term goals. And then accept that even the most closely followed strategy won’t be right every time.
4 Seasons: With thousands of equity CFDs to select from, one factor that most XTrade Europe traders overlook when they commence trading is equity CFD price seasonality. This is one of the most apparent factors influencing share CFD prices. If it’s summer time you must consider CFDs which historically have price moves up throughout this time of year. While seasonality effects are not enough to justify your choice of a trade, they are certainly a worthwhile element to consider for CFD traders. If the effects are strong enough and consistent enough, they should certainly be taken into account.
Almost every new trader overlooks company fundamentals when choosing a CFD to trade. One of the most important elements in choosing a stock CFD is the company’s balance sheet and profitability, reading over the company’s balance sheet is crucial ahead of making medium to long-term investments, naturally if you plan to engage in short term trades this is less imperative.
Leveraging works in similar ways as a mortgage. When you want to buy a house, you will need make a down payment and get a mortgage. In this case the mortgage gives you the ability to buy the house that you want. When you sold your house you pay off the mortgage. And what you have left is your profit. The same principal applies for CFD leverage. Let’s say you want to buy 100 Apple Inc. shares. With CFD Apple Inc. shares you only make a small down payment to acquire 100 shares and the broker will finance the rest. The broker is behind much of the position and the difference between the opening and closing price will eventually settle with your own balance. You are at no time the owner of the security; the broker will control both the buying and selling. When investing in CFDs, you have no further responsibility since you are not the owner of the physical effect.