CFD Trading

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CFD (Contract for Difference) is a relatively new financial product. CFDs were launched in England in the early 1990s, and a few years later CFDs also opened up to private investors and quickly became popular among traders on the London Stock Exchange (LSE). The whole world is open to those who want to invest in CFDs. Stocks, agricultural commodities, currencies, cryptocurrencies and indices are available as CFDs.

CFD trading makes it possible to make money regardless of whether the market value is rising or falling. An agreement is made between you and the broker. By choosing a long location you think prices will go up and by choosing a short location you will think prices will go down. You can make money on both ups and downs. You decide in which financial instrument you want to invest and how long you want to keep it. The higher the risk, the greater are the chances of making money, but as with any financial transaction, there is also a risk that you will lose the capital you have invested. Remember that leverage is used in CFD trading. One way to protect yourself from excessive losses is to use a stop-loss.

Important: As an investor, you do not own the underlying benefits but follow the development of the price.


Benefits of CFDs

  • Large variety of CFDs.
  • CFDs are recommended for Day Traders because small price changes have a large impact on invested capital due to leverage.
  • CFD trading is easy. An investor can monitor changes in the value of their account every second, and once a certain predetermined level is reached, the investment can be closed quickly.
  • Investors with limited capital have access to financial markets and thus the opportunity to increase their capital.
  • Trading is possible in both emerging and declining markets.
  • You dont have to do paperwork when buying and selling.

Disadvantage of CFD

  • If you want influence and voting rights in a company, CFD trading is not for you because you do not own the investment.
  • Contracts are traded on leverage. You can lose all your invested capital.

Plan your CFD Trading

The most important thing to trade successfully is that you prepare well. Here are some things to keep in mind.

  • Think about your financial situation and how much you can spend on trading. You need to be aware that you can lose all your invested capital. Therefore, invest only in what you can afford to lose.
  • Think about which market you want to enter, and then select up to a couple of products you want to focus on. If you select too many items, it is difficult to track the positions and it is easy to panic when prices fluctuate sharply and the risk of errors increases.
  • Don't get too greedy. Once you have earned a good win - close your position!
  • Once you have reached your goal, take out some of your winnings. After a good trading day, it is easy to lose your judgment. Take your winnings and do something fun.
  • Use demo accounts to get an idea of what the investment looks like in different positions.
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General Trading Errors

  • You have not planned the strength of the leverage.
  • You close your position too early or too late.
  • You are opening too many positions.
  • You do not use a training account. CFD brokers offer free demo accounts - use them!
  • You are using the wrong investment strategy.

Remember that CFDs are traded with leverage and losses can be large and you may lose the capital you have invested. CFD trading is not suitable for all investors.


Leverage

Today, leverage is used e.g. in stock, currency, commodity, index and bond trading. Brokers and investors use leverage to increase the capital. Companies offer a variety of leverages that range from 1:1 upwards, depending on the investor’s preference. Leverage is an aid to investors with relatively small initial capital to enter the market. Leverage increases profit, but it is also important to remember that leverage increases loss. The higher the leverage, the greater the risks.

Pending order

You place an order for a specific value and the computer activates your position when the desired position occurs.

Stop-loss

In order to protect your invested capital from loss, you can use a stop-loss order that closes your position when the value of the investment is at a certain level. You specify the loss stop level in advance.

Take-profit

You specify the cut-off point in advance. When you reach the specified value, the order automatically closes the position. Assignment reduces risks.


Cfd Brokers

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