Trading CFDs involves buying a particular number of contracts on the market if you believe that they will rise and sell them if you believe that they will fall. But this is a general definition of CFD trading. Its finer components may seem a bit more complicated, particularly because platforms vary between providers.
However, if you divide it into 3 important steps you can learn how to trade CFDs quite easily. Here they are.
- Create a CFD Account and Place a Deposit
Creating a CFD account is quite simple and takes only a few minutes. Once the details provided by you are verified, you will have to fund your account. There is a minimum amount which you’ll have to deposit. But if you are not sure about using real money, you can even open a demo account and practice trading with virtual funds.
2. Look for a Trading Opportunity
Now, it’s time for your first trade which you have to choose from thousands of markets. This may be daunting. Here are tips for choosing a market for your first trade that may suit you.
- Study analytical charts on market moves available on many sites.
- Some other websites also offer a system of alerts which you get when the market moves by a set amount or hits a particular level
- You can also get guidance from experts with full analysis and even live videos that explore developing trends and patterns worth watching
- Get alerts for potential opportunities and key trends
3. Open a CFD Position
After you select the market and are prepared to place a deal, the next thing you should decide is whether to go long or short, i.e. buy if you think your market’s value will reduce or sell if you think it will rise respectively.
A few things you should remember while opening a position are:
Sell and Buy Prices
You’ll always get two prices depending upon the value of the underlying instrument: buy price (the bid) and sell price (the offer).
The bid will always be more than the existing underlying value while the offer will always be less. There is a difference between these two and it’s known as the spread.
Number of Contracts
The next thing to decide is the number of contracts you want to trade. There is a minimum number of contracts for each market. E.g. the FTSE is one contract.
Stops and Limits
These options help you to minimize your loss. Stops close your position automatically when the market moves by a particular amount against you whereas limits close your position when the market moves in your favor by a certain amount. There are three types of stops viz. Basic, Guaranteed and Trailing.
Take help of an expert if needed and start trading CFDs because it’s one of the most beneficial types of trading today.