What are CFDs?
Puzzled? Let’s clear things up. The term CFD stands for Contract for Difference, a popular investment method with a wide range of advantages over other investment practices. A CFD contract is based on speculating on price movements of various assets. With this type of trading, you don’t need to take physical ownership of the underlying asset, simplifying the entire process.
This investing tool allows you to make potential profits from the fluctuations in prices of the underlying assets. The amount of profit or loss is based on the change between the initial price of a CFD position and the price when the trade is closed.
CFDs trading requires a small initial investment that is valued less than the contract. This becomes possible due to a special feature called leverage. Leverage can substantially increase your potential profits, if your estimation is correct. And vice versa, if your calculation is incorrect, you might lose some or all of the invested funds.
HOW to Open Your First CFD Trade?
Let’s say Tom is an investor who is interested in trading GOLD prices in the form of a CFD. This means that he doesn’t need to actually buy and store GOLD bars. Instead, Tom will open a trading position online, acting fast to potentially profit from market fluctuation.
- Choose a Financial Asset
Let’s assume that you’ve chosen to trade on GOLD.
GOLD is quoted in the following way:
$50.22 (SELL), to $50.30 (BUY).
Open Your Deal (choose direction)
Let’s suggest that your presupposition is that GOLD’s price is undervalued. Therefore, you assume that it should grow.
Your next step will be opening a “Buy deal” on GOLD.
*When trading CFDs, there’s no need to physically purchase a certain amount of GOLD bars, instead you can open a trade online.
Close Your Position
What’s next? Having opened a “Buy position”, you should wait for the market’s response. It’s that simple. Your trading position is opened and you can spot its changes on the trading platform, inside the trading positions section (your opened deals). What happens when the trading position time expires? The price of GOLD increases and equals $52.1. Thus, your potential revenue by the time the deal is closed increases as well.
Strategic aspects of trading CFDs
- CFDs trading provides investors with a unique opportunity to benefit from both long positions (prices going UP), and short positions (prices moving DOWN). This means that you can potentially profit when the price of an underlying asset goes up, or down.
- At TradeFinancial you can open a variety of trades on CFDs with a special tool – leverage. This means that you will be able to open solid deals with a relatively small investment.
- You can trade anywhere and anytime, using our advanced platforms for Web and Mobile.
- You don’t need to own or store the products you invest in.
Why you should open an account
In order to become a successful trader, you should take under consideration the market’s most influential events, using them to spot trends and open potentially beneficial trades. That’s why we have collected the most advanced market analysis tools that can help you elevate your trading skills.
Opening an account with TradeFinancial is simple and intuitive. Fill in your details and start trading on a multifunctional platform that can help you become a successful investor.