A CFD is a difference in where a trade is entered or exited. A CFD is different from buying stock because there is no direct ownership of the stock by the person entering the contract. The other difference is that you require that a CFD broker to do your trading for you if you do not have any experience.
Once you have signed up with a reputable agent, you can then start trading on CFDs.
The Way CFDs Work
If you are a seasoned investor, then CFDs will be a walk in the park to you, almost second nature. If you are a beginner, this might be the most daunting task you face! Unlike trading in stocks, you never own stock traded in CFDs directly. A CFD broker is required before you start. The trader will put in your request, but it will have a loss as soon as it’s entered. The loss is equal to the spread of the CFD broker. Let us say for example the spread is 10 cents, the stock would have to appreciate by 10 cents just to break even. From there on any appreciation leads to a profit for you.
For a regular stock trading process, the increase would have constituted a 10 cent profit on each share because you owned it directly.
As with all other forms of trading, it is wise to do in depth research as to how the markets work. For example, it would require only 5% margin to be paid upfront to a CFD trader unlike the more typical 50% paid in traditional trading.
There is a lot to read on CFD trading, and you should be well prepared on the ways the market works before attempting to trade.
After learning all you can on CFD trading move on to selecting a stock to trade on. Do plenty of research on the company before placing your hard earned money on it.
There are several factors to consider but here are a few basics we believe are imperative.
Quality and Quantity
This quality and quantity research is based on the fundamentals of the company you want to invest in. Various factors affect the underlying value of a company. These are what we refer to as fundamentals. Make sure you research in the quality relating to the intangible aspects and the quantity which includes the company’s financials.
This analysis refers to the study of the price movement of the company’s shares. You should research the past charts on the price action for the enterprise. Good traders know that the changes in prices often form a pattern. You can use this information to predict the way a shares price will move in the future. It also involves checking who is in control, price support, and resistance levels.
Using both these methods can lead to a greater chance for favorable results. Several other useful tips are available on TraderVC reviews of CFD trading.
Finally, practice your skills. You can try out a free demo account, such as the one on Trader VC, as it will give you the experience of trading in CFDs without the risk of losing any of your money.