CFD for beginners
You might have heard a conversation or two about the amount of money that can be made with CFD trading. You might be wondering how one can become a CFD trader. Don’t worry, in this guide we will inform you about the entire process of becoming a CFD trader. For beginners, trading CFD might sound complex, but with our guide you will know everything there is to know about becoming a CFD trader. So, without further ado, let’s get started:
How does CFD work?
You might be wondering how CFD trading works, so let’s explain its operations using a simple example. An important and interesting fact is that, unlike spread bets, futures and options, CFDs don’t expire.
Let’s assume that the current price of gold is $1500 per ounce, and you believe that it will go up in the near future. In such a scenario, you are going to open a buy (“long”) position with your broker. If your understanding is correct and the price of gold rises to, let’s say, $1550, you can sell your position and make a profit of $50 per ounce of gold. On the other hand, if the market moves in the opposite direction and gold price drops to $1450, you will lose $50 per ounce.
How to become a CFD trader – a step-by-step guide
Thanks to modern technology, CFD trading has become much easier for the general public. In today’s informed world, anyone can become a successful CFD trader if they utilize their resources efficiently.
If you also want to become a CFD trader, there are certain things that you should keep in mind. You can think of them as steps that will help you become a better trader with time. Apply these principles on your CFD trading journey and you will be able to reap some impressive benefits.
Step 1: Learn about CFDs
Before starting your CFD trading journey, you should spend some time learning about CFDs. You don’t need to dive deep into literature, but knowing certain key market facts can never hurt. Learning about CFDs will allow you to become familiar with the subject and you will be better able to execute successful trades based on your knowledge.
Step 2: Choose a broker or a trading platform
Brokers and trading platforms are the medium through which you trade CFDs, and are therefore very important. You should spend some time researching different CFD platforms and then choose the one that offers the best set of services. CFD brokers and platforms will charge a certain commission, so you should keep that in mind. There are many good companies available out there, and choosing the one best for you will depend on your specific needs.
Step 3: Open an account
Once you have chosen a broker or a trading platform, the next thing for you is to open an account with that broker. Opening the account should be a simple process, and you will only need to provide some basic information. Once you have provided the information, you have successfully opened a CFD trading account.
Step 4: Finance your account
Now that you have opened an account, the next thing for you is to finance your account. The minimum amount with which you can start trading CFDs depends on your broker or trading platform, but the entry barrier is usually very low. In fact, many brokers offer promotions when starting your forex journey. You can begin your CFD trading journey with as little as $100, but if you want to see some healthy profits, you will need to invest a little extra.
Step 5: Choose your style
Having a specific trading style and goals is very important in trading. Your trading style will largely depend on your personality, your attention span and the intensity with which you execute trades. There are various different trading styles, and you can go through different ones to find the one most suitable to your trading needs.
Step 6: Use leverage but carefully
Once you have a relatively good grip on CFD trading, you can begin to explore the world of leverage trading. A leverage trade can allow you to maximize your profits manifold, but they can also magnify your losses. So, it’s better to do your research before using leverage for trading.
Step 7: Diversify
All the successful people have one thing in common: they diversify their investments. Once you have learned about CFDs and you have become a good CFD trader, you should aim to explore different markets to diversify your investment. It is never a good idea to put all your eggs in one basket.
In this article, we explored CFD trading and also shared some simple yet effective steps that you can take to become a CFD trader. Remember, never let your emotions dictate any trade moves and always aim to diversify your investments to have better protection against market fluctuations.