What is CFD trading and how does it work?

If you’re one of those active traders who is fed up of paying high brokerage fee and extensive paper work everytime you go out to invest, then check this out. CFD or trading contracts for difference is a popular way of speculating the rise and fall in financial market without actually buying or selling assets. Here we are providing you with every single detail you need to know before investing your hard-earned money into CFD’s. From the leverage and how it benefits to short trades to methods with which you can invest online.

What is CFD trading and how does it work?

In simple words,  CFD trading is a way to invest your money into shares, indices, forex and other commodities. The only significant difference here is that you’re not taking the ownership of the underlying assets. Instead, you’re speculating on the financial market.  As an investor, you’re now buying and selling the CFD’s meaning contract for difference. So, everytime you buy a CFD you’re agreeing to pay or receive the difference( Rise or fall) in the price of assets. Also you can speculate the movements of price in either direction. Your profits and losses will be determined by the extend of correctness of your forecast. Before moving forward with how to invest online, let’s have a look at some important features of CFD.

• Leverage: CFD trading is leveraged which enables you to put in a small percentage off capital and get exposure to comparatively larger sum of money in the trade. So make sure to pay attention to leverage in CFD as both your profits and losses are amplified.
• Long and short CFD's: As we have earlier established that you can go in either direction when it comes to speculation in CFD’s. Going long means to open a sell order and that you’re opening trade and anticipating for a rise in price while going short means you’ve anticipated a fall and opened a sell order.

How to invest in CFD Online?

CFD trading is a difficult trade and only ready to take the risk should consider this. To invest follow these steps :

• Get a reliable market to trade on. Some of the best brokers are City Index, XTB, CMC Markets, eToro and Activ Traders.
• Decide whether you want to buy or sell the assets. If you’re anticipating a rise in the price, go for buy and if you’re thinking the market will eventually fall, go for sell.
• Make sure to select the size of your trade. In equity trades, the value of one CFD is equivalent to one physical share.
• Also don’t forget to add a stop loss. It is an order to close your position out so you don’t suffer too much loss.
• Finally, be patient and monitor your trade.