CFD trading is an agreement between a trader and a broker that involves the change of an asset’s value across time – hence Contract for Difference. CFD trading is ideal for people who are beginners, but there is still some learning to do before you dive into the world of trading. Let’s look at the basics that you need to learn before you start.
What is CFD trading?
With CFD trading, you never actually own the share, commodity or index that you are trading with. It means you can have fun by going for shares or commodities that you like or are interested in, even if you could afford the whole thing. In CFD trading, you use your judgement to decide if that asset is going to go up in value (called going long) or down in value (called going short). It is known as trading on margin.
In most cases, you will only require a small deposit to make the trade. So, if you are trading on a share with a price of 100 pence, you would normally need just 5% to start CFD trading – in other words, 5p per share. If you are right in your predictions, the seller pays the difference between the initial buy price and the new value. But if you are wrong, you pay the seller the difference. For example:
• Buy 1,000 CFDs at 100p – £1,000. Sell 1,000 CFDs at 120p – £200 profit
• Buy 1,000 CFDs at 100p – £1,000. Sell 1,000 CFDs at 90p – £100 loss
Types of trading available
There are different types of CFD trading platforms available. Some specialise in certain assets or markets while others are more general. The four most popular categories of trades are:
• Individual equities or shares – these are in limited companies such as Apple or Facebook that have been floated on the stock market so that anyone can invest in them.
• Stock indices – these are geographically categorised companies with the FTSE 100, the Frankfurt Stock Exchange and the Dow Jones being a few examples.
• Commodities – these include crude oil, gold, precious metals and even agricultural products such as sugar or wheat.
• Currencies – these are traded in pairs against one another in the same way as with Forex trading.
Beginner’s trading tips
In addition to deciding where you want to trade and what assets you want to trade with, there are some other tips to help you get ready for your trading experience.
For starters, make sure you start small with the amounts that you trade with. Don’t be tempted to jump into big trades with lots of money and then find you have used up all your capital. By starting small, you can learn what you are doing and start making money or only make small losses.
Another top tip from traders is to make sure that you don’t trade based on emotion or impulse. We’ve all had those ‘gut feelings’ that we act upon but when you are CFD trading, it is important not to go on impulse or emotion. Instead, have your strategy and stick to it. Don’t be swayed away from your plan.
As well as keeping your trades small, using stop losses are also very important. These are something you set to stop a trade at a certain point. They are essential to limit losses and to help you stick to your plan. Once you set them, don’t remove them!
Finding the right platform
The final part of starting your CFD trading experience is to find the right platform for your trades. Weiss Finance offers a safe and secure place to conduct your trades with plenty of information to help you learn about CFD trading as well.