What is a CFD? Is it really possible to earn in CFD? These are some of the questions that beginners tend to ask or search online upon joining the market. This is entirely normal considering the fact that they will be investing their hard-earned money. And when money is involved, doubts are surely at their peak. But why is CFD highly recommended? Does it give retail traders a chance to become financially stable?
What is CFD Trading?
Contract for Difference also known as CFD is a form of trading that binds the trader and the buyer with a contract or an agreement stating that the losing party will be paying the difference between the opening price and the closing price. Some of the advantages of CFD includes;
- Flexible Contract Sizes
- Going Long or Short
- Trading on Margin
In CFD, you can pick an asset to trade but unlike the traditional stocks trading wherein you’ll be required to pay the full amount, you will only pay part of the full amount as an initial investment to open a CFD account. Then, a contract will be drafted between the buyer and the trader. Knowing its flexible alternatives, it is without a doubt that trading has become quite popular especially to new traders.
The Benefits of CFD Trading
CFD is not isolated to short trades only. Traders in CFD have the choice to go long and because of this flexibility, CFD has gained popularity over the years. Traders are also given the ability to trade in bull or bear markets. With the right trading strategy, you will surely get the success that every trader dreams to have. Forecasting the price movements is very important in CFD. But you cannot tell the movement of the market if you don’t have the right trading strategy. This is the reason why, before you enter the market, you must be well-knowledgeable so you can create a good trading strategy for your trades.
Another good thing about CFDs is their flexibility when it comes to trade sizes. For new traders, it is highly recommended to have small lot sizes until such time that they get to develop a good trading strategy that they can use for their trades. For experienced traders, obviously, they are adept in the market and can now open larger trade sizes.
When leverage is concerned, margin must also be given much attention. Margin is connected to leverage because it is the term used when referring to the percentage that the trader needs to pay to use leverage in trading. Leverage might look like something that you can simply use when trading, but in fact, it shouldn’t be used lightly.
Leverage has its own advantages that can easily turn into a disadvantage when not used properly. So, if you are planning to use leverage when trading CFD, you need to make sure that you plan your moves accordingly and prepare to counter the risks that might endanger your trading capital. With the right trading strategy, knowing what is a CFD and attitude when trading, you will surely attain your goals.