What is CFD Trading?

Contracts for Difference, more commonly known as CFDs, are trading products that are ideal for speculating on financial markets. CFD trading caters more to experienced traders as understanding what they are and how they work may be confusing for beginners.

However, in making use of intricate guides and tutorials, any trader can start exploring this dynamic form of trading.

It is important to understand that CFDs, like any other financial instrument, are complex and are associated with high risks of losing capital rapidly due to using leverage. There are between 74-89% of retail investor accounts which lose money when trading CFDs.

It is therefore imperative that traders educate themselves adequately and that they can mitigate the risks that they are exposed to before trading CFDs.

When trading CFDs, traders are provided with the opportunity to speculate on asset markets without having to physically purchase or sell the underlying asset. Traders can therefore profit from the future value of the asset, should they have speculated correctly, both if it increases or decreases.

This difference in value is more commonly known as a movement. Seeing that CFDs are derivative products, the value thereof is not causally linked to the underlying asset but origins from the value which is placed on it by both traders and brokers.

When traders choose to trade CFDs, they have a variety of assets from which they can choose including shares, indices, forex, and commodities. In more recent times, Bitcoin CFDs have also become more popular as contracts that are linked to cryptocurrencies.

 

How to start trading CFDs

When traders have educated themselves in CFD trading, the next step involved in finding a CFD broker. It may seem like a daunting task, but when using the following points, traders can easily identify a broker that is suited to their trading needs.

Choose a regulated, reputable broker – CFD trading in its own is risky without adding the risk of a fraud broker. Traders must ensure that they use brokers who have the necessary regulation and who can safeguard client funds.

Have a look at customer support options – it is imperative that the broker offers a variety of channels through which traders can contact them with questions, queries, and any issues.

Withdrawals and deposits must be easy – even though some payment methods take a few days, traders should not experience difficulties with getting their funds back.

Platforms and markets must suit the trader’s needs – traders must know what they want from their broker. For this reason, traders are urged to use demo accounts until they can find the right combination of markets as well as features.