CFD Trading Explained

CFDs offer traders a number of potentially lucrative benefits. But due to their significant potential reward, these investments still pose a significant risk and require careful consideration before entering a position.

In order to improve their ability in this investment strategy, traders should follow the best CFD trading practices, namely, thoroughly research investments before opening a position and exercise caution when investing in any CFD trade.

In the meantime, pay attention to the commissions chart also when choosing a broker, risk limiting functions such as negative balance protection are an important factor.

KEY TAKEAWAYS

• CFD trading is a popular alternative to traditional investing due to its ability to maximize capital investment and increase the trader's potential profit or loss.
• CFDs can be traded in various markets.
• CFD trading signals are - buy or sell suggestions based on emerging chart patterns when key levels are being reached.
• Unlike investing in stocks, when investors

  trade stock CFDs, they are not buying or trading the underlying asset.

Benefits of CFD Trading

CFD trading is a popular alternative to traditional investing due to its ability to maximize capital investment and increase the trader's potential profit or loss. This approach to forex trading has become popular over the past decade, especially as some brokerage firms offer negative balance protection to limit the large losses that can lead to debt in your trading account.

Let's take a look at the benefits of CFD trading that have made it so popular.

• Profit from falling markets - Let's say a trader has researched particular stocks and thinks that they will decline. Instead of looking for a new opportunity, he can sell the CFD on a stock, making a profit if its stock price falls.

  However, if the stock rises instead, the trader will get a headache, if for some reason he forgot to use a stop-loss.

• You keep your capital - Since CFD trading allows trading using leverage, investors don't need to own assets. Thanks to leverage, they can open the position and pay with their margin. It works because investors are speculating on the price movements.
• You can trade shares, indices, Forex - CFD brokers offer access to a wide range of asset classes, so for example investors can trade at IFC MArkets buy and sell:
  • Continuous Index CFDs
  • Stock CFDs
  • CFDs on Commodity Futures
  • Continuous CFDs on Commodities
  • CFDs on ETF
  • CFDs on Crypto Futures

  Plus, each market is available on a single platform, so switching from indices to energy takes just a couple of clicks.

• Hedge with CFDs - A useful strategy when a trader has taken a risky CFD position or when a long-term position is losing. Instead of selling at a loss, the trader can open additional positions in the hope of making a profit that will balance his original position. When used correctly, a hedging strategy can counterbalance some of the risks associated with CFD trading.
• Less Fee - CFD brokerage fees tend to be more cost-effective, since brokers typically take their earnings from daily percentages earned by financing the transaction.

You can join IFC Markets free demo trading account and try trading CFDs

Forex CFD Trading

CFDs can be traded in various markets including Forex. Forex CFDs allows investors to trade all currency pairs - it could be major , or exotic even minor currency pairs.

Trading CFDs is not for everyone, since it bears ample risk. Before deciding to start trading CFDs on Forex have a general understanding of what you need; your risk tolerance, investment objectives, and of course know your level of experience. You will probably lose some of your money, so you should invest the amount of money you can afford to lose.

Don't get addicted to the leverage, instead make a habit of using risk management.

CFD Stock Trading

Unlike investing in stocks, when investors trade CFDs on stocks, they are not buying or trading the underlying asset. They buy a contract between them and the CFD provider. It has its advantages.

• Traders only need a small amount of capital: thanks to the leverage, traders can get full market exposure using only a percentage of the value of the position.
• Traders can directly invest in the most prestigious companies in the world by buying stocks and trading long or short positions based on their performance anytime, anywhere.

Traders can directly invest in the most prestigious companies in the world by buying stocks and trading long or short positions based on their performance anytime, anywhere.

With IFC Markets, traders will be able to trade CFDs effortlessly.

CFD Trading Signals

Trading signals are like instant alerts that inform the investor about trading opportunities. When a trader subscribes to CFD trading signals, the provider scans the market on their behalf and looks for price action to trade. Over time, traders can learn to make the most of trading signals and notice trends that indicate changes in the market that they can take advantage of.

CFD trading signals are - buy or sell suggestions based on emerging chart patterns when key levels are being reached. Each suggestion contains the required entry and exit prices, so it lets you skip in-depth technical analysis.

Trader should look for in CFD trading signals;

• Check all of the available information regarding specific CFD trading signals before using them.
• Check that they will help you in your strategy.
• Check if the customer support is good.
• If there is a clear list of suitable assets.

Trading signals are usually generated using automated algorithmic analysis. Then traders can use it to decide whether to go long or short on an asset and can use trading signals for different markets, such as forex trading signals, when deciding whether to buy or sell certain CFDs.

However, trading signals have their pros and cons.

Pros

• For beginners - if a trader is new to CFD trading, signals can help him/her to identify trades.
• No hands-on approach - investors can make decisions without constantly monitoring the charts.

Cons

• Unregulated - Trading signal providers are generally unregulated, which puts traders at heightened risk of receiving bad advice or being scammed.
• Good and reliable providers charge higher fees.

Bottom Line on CFD Trading

Trading CFDs requires certain skills, so traders should make sure he understands what he is getting into before he starts. These derivatives give traders access to any market in the world, and they are, in effect, “betting” for or against certain stocks, currencies, indices, etc. without owning the underlying assets.

Traders get professional services for lower commissions and high leverage, but can also deal with unregulated brokers and take more risk as they control large amounts of capital.

With dedication and knowledge, traders can develop a coherent strategy and plan for deals and stay on top of market fluctuations.