An Introduction to CFD Trading
CFD (Contract for Difference) trading is simple method of online investing that in which traders predict the price movements of underlying financial instruments: namely, commodities, stocks , indices, and currencies (FX). Traders either buy a certain amount of CFD shares, and then sell the same shares and hopes the price has gone up. Or they sell the shares first, and then buy them back later, hoping that the price has gone down.
Investing in CFDS is different than working with traditional stocks and commodities because you are not expected to take physical ownership of the underlying asset. Instead, you simply speculate on the price movements of your chosen instrument, in order to buy shares when the price is lower and sell them when the price is higher. The difference between the buy price and the sell price makes up your potential profit or loss.
CFDs offer traders a wide range of opportunities due to the varied types of assets that are available on most trading platforms. There are four main classes from which to place orders. Stocks are parts of a company’s worth that have been released to the public. This is used to judge if a company’s performance is improving or getting worse. Indices measure groups of stocks and give a broader picture of a region’s business climate. Currency values are tied to a country or region’s economic situation. Finally, commodities relate to goods such as gold, oil, or wheat, which are available from multiple suppliers around the world, and whose price fluctuates due to more global concerns such as political instability or weather.
BENEFITS OF TRADING CFDS
CFDs offer several advantages over alternative investments:
• 24/5 trading to fit any schedule
• Possibility of trading both rising and falling prices
• Lower fees and commissions
• Hundreds of assets
• Capability to open multiple concurrent trades
• Leveraged orders
CFD Trading Basics
A Buy order is a contract to purchase certain amounts of an asset (counted in units called lots) at the lowest price for which they are currently available for sale. This is called the “ask” price.
Investors would place a buy order when they believe the value of the selected asset is likely to go up by the time they are ready to exit the trade. A buy order, or position, is closed by selling the same number of lots that were originally purchased. The difference between the value of the lots at the opening of the order and the value of the lots when the order is closed is the profit made on the trade.
A Sell order is a contract to sell certain amounts of an asset (counted in units called lots) at the highest price for which they are currently available for purchase. This is called the “bid” price.
Investors would place a sell order when they believe the value of the selected asset is likely to go down by the time they are ready to exit the trade. A sell order, or position, is closed by buying the same number of lots that were originally sold. The difference between the value of the lots at the opening of the order and the value of the lots when the order is closed is the profit made on the trade.
Placing an Order
Placing an order is a quick and simple process. There is a list of assets which includes the latest price for which lots can be bought or sold. The platform also displays whether the asset’s price is trending up or down. Traders can place either a buy or sell order whenever they feel the price will allow for sufficient profit potential.
It is important to note that there is always a difference between the buy price and the sell price, with the sell price usually being slightly higher than the buy price. This difference is called the spread, it and is typically where a brokerage makes money. In order to earn a profit, the value of the asset needs to rise by at least the amount of the spread.
After the trade is opened, its price can be tracked in the open positions section of the platform. This will also display the position’s required margin, and outstanding profit or loss. Once the trader closes the position, it will appear in the closed positions section. This will show the opening and closing price along with the realized profit or loss.
Traders can access several tools directly from the platform to assist them with trading successfully, including our Economic Calendar, Analyst Blog, Webinars, E-books, and Glossary.
Open an Account
Opening an account with FXVC is simple and intuitive. Fill in your details and start trading on a multifunctional platform that can help you become a successful investor.