In this article, we will be discussing CFD trading and how to get started. CFD trading is a popular choice for traders who want to explore many markets without investing large sums of money. We will discuss the basics of CFD trading and provide some tips on how you can get started.
Table of Contents
What is CFD trading?
CFD trading is a type of derivative trading which allows traders to speculate on the price movement of an asset without having to own the underlying asset. It means that CFD traders can take advantage of both rising and falling markets. In other words, CFD trading enables traders to express their views on the market without committing large sums of money to purchase the underlying asset.
When you trade CFDs, you are entering into a contract with your broker. The contract states that you will pay the difference in the price of the asset when you enter into the contract and the price when you exit the contract. If the price of the asset increases during this period, you will make a profit. If the price decreases, you will make a loss.
It is important to note that CFDs are leveraged products, which means that you only have to put up a small deposit (known as margin) to open a position. It allows you to gain exposure to a much more prominent position than if you were trading the underlying asset directly. However, it also means that your losses can be amplified if the market moves against you.
The benefits of CFD trading
CFD trading offers many advantages which make it a popular choice for traders. These include:
Leverage- as we mentioned earlier, CFDs are leveraged products which means that you only have to put up a small deposit (known as margin) to open a position. It allows you to gain exposure to a much more prominent position than if you were trading the underlying asset directly.
Short selling- with CFD trading, you can take advantage of falling markets and rising markets. It is because you can enter into a contract to sell an asset, even if you do not own it. It is known as short selling, and it allows you to profit from falling prices.
24-hour trading- CFD trading is available 24 hours a day, from Sunday evening to Friday night. You can trade when it suits you and take advantage of opportunities in different time zones.
How to get started with CFD trading
First, you need to find a broker which offers CFD trading, like the local Singaporean brokers at https://www.home.saxo/en-sg/products/cfds. Many online brokers offer CFD trading, so shop around and compare their offerings to find the best one for you. Once you’ve found a broker, you’ll need to open an account and deposit funds.
Most brokers require you to complete a short questionnaire about your financial goals and investment experience before they allow you to trade. It is to ensure that you understand the risks involved and are comfortable with the risks you’re taking.
Once you have an open account and deposited funds, you’re ready to start trading. Choose the asset you want to trade and enter into a contract with your broker. Remember, you can trade a wide range of assets with CFDs, including indices, forex, commodities and shares. When you’re ready to close your position, enter into another contract with your broker to sell the asset back.
Your profit or loss will be the difference between the price at which you bought the asset and the price you sold it.
Tips for becoming a successful CFD trader
If you’re new to CFD trading, you can do a few things to increase your chances of success. Remember, CFDs are leveraged products which mean that your losses can be amplified if the market moves against you.
It is also good to set yourself risk management rules, such as not investing more than a certain percentage of your account balance in any one trade.
Finally, make sure you keep up with news and events which could affect the markets you’re trading. It includes economic data releases, political developments and natural disasters. By keeping up-to-date with the latest news, you can make informed trading decisions which could lead to success.
