Trading CFDs allow you to trade even on falling markets and also gives you access to thousands of instruments. To take advantage of these benefits, you must be aware of all their advantages.
Choose a Market
In CFD trading, you can trade on thousands of markets like bonds, shares, commodities, indices, and currencies. Additionally, it gives you instant exposure to some of the major markets around the globe like Asia, the UK, Europe, New Zealand, and Australia. Knowing all these things, it is just important to find the best trading opportunities in CFDs.
There are brokers who are able to offer you several research tools that will help you predict the market movement and boost your chance to identify several trading opportunities that perfectly match your style in trading.
Choose To Go Long (buy) or Go Short (sell)
After choosing a specific market, you now have to identify the current price. To be able to do so, you have to bring up a trading ticket from your trading platform. You can find two prices in the CFD market.
These are the selling price and the buy price. When calculating the difference between these two prices, the result is called the spread. You can determine the price of your CFD according to the value of the underlying asset.
If you think that the market price of your underlying asset will go up, you can choose to go long. But if you think that the market price will fall, you can choose to sell your underlying asset or go short.
Picking Your Trade Size
In CFD trading, you can choose the number of CFDs that you can trade. As for equity trade, 1 CFD is equal to 1 share. If you trade commodities, indices, interest rates, bonds, and Forex, the price of 1 CFD is dependent on the underlying asset. You can easily see the number of instruments you are trading by going to the ‘tick value’ of the underlying asset’s information sheet.
Since CFD is a leveraged product, you can trade just by putting on a small percentage of the full value of the underlying asset that you want to trade. This deposit is known as margin and you have to pay this margin to open a trading position.
Generally, if you want a larger trade value, you also have to pay more margin. More importantly, you must have sufficient funds in your trading account so you won’t be receiving a margin call from your broker, pushing you to pay more, or your open trades will be closed indefinitely.
The Use of Stop Loss and Limit Orders are Very Important
Before entering a trade, you must identify your risk appetite and place your stop loss or limit orders according to those data. This is the best risk management strategy that you can ever have when trading CFDs.
After all, although trading CFD requires little deposit, if you handle it incorrectly, you will end up losing not just the profit from your previous trades but also your trading capital. In this case, you will be broke.