What could be the reason why Contracts for Difference (CFD) is so famous? It’s all because the advantages outweigh the disadvantages. As long as you have the knowledge and skills to lay down profitable trades, you will certainly excel in the industry. But above all, before you can gain knowledge, you need a better understanding and get yourself familiar with the basic ideas of CFD trading as leveraged trading.
- CFD is a leveraged instrument
- CFD allows you to go long or short
- CFD allows you to choose your market
- CFD will NOT make you rich quickly
- CFD is NOT preferred for long term investment
- CFD is NOT for lazy people. Take time to research and learn the market you are in.
Theoretically speaking, the concept of CFD is very simple. Though it’s simple, you shouldn’t underestimate it. Although CFD is standardized broadly, the investment product is complex and high risk. One wrong move and you’ll get doomed with unlimited losses. But you can dodge these misfortunes if you learn how to deal with each trade. You must also consider the ins and out of the transaction made in CFD before you actually start trading and managing your portfolio in CFD.
Unique Features of CFD
These are unique features that CFD has to offer. It is unique because these features aren’t seen in other instruments. CFD is margin traded and high leverage that easily gets sold-off in various markets. Because of that, it allows you to capitalize on the market movement. But never get too relaxed. Although its high leverage makes trader trade more, it can also be a dangerous tool for disaster. Knowledge is the only key here. You can only make profitable trades if you properly understand the market.
How CFD Trading Works
Amazingly, CFD and spread betting have similarities. In spread betting, you will be working out your trading position through the use of research and understanding of the financial market. Then, you can open an account and start placing your transaction. If you ‘buy’ you are hoping that your position in the market will rise before you sell it for a much higher price when you bought it. The process is similar to CFD. The only thing about CFD is the presence of a contract that binds the trader and the broker.
Traders and brokers profit in CFD by the difference of the buy and sell price. As for spread betting, it is also a leveraged product, therefore, the financial costs are paid to the broker for each leveraged position. The percentage changes every day.
Without a basic understanding of CFD, you will not succeed in making profitable trades. Plus, trading on margin is quite complicated. It is mostly the cause of misunderstanding which results in failed trades. Knowledge is the foundation of your trading career. Don’t let yourself learn the hard way. Remember that your hard-earned money is at stake. Anyway, there are already a lot of ways to learn about CFD trading as leveraged trading. It can be through forums, trading books, and educational videos about trading.