This article is for entertainment only and is not professional advice. As with all investments and trading practices, your capital is at risk and you should seek professional advice before partaking.
What is CFD trading?
A Contract For Difference, commonly known as a CFD, is a contract that is signed between a buyer and seller of an asset. It is also one of the most popular forms of derivative trading. The agreement entails the buyer paying the seller the difference between the current value of the asset and its value at a predetermined date, i.e. the contract time or expiry date. A CFD is not limited to only one type of trading, as its scope extends to stocks, indices and forex, amongst others. Therefore, any beginner who is looking to explore this investment type is advised to do the necessary research beforehand. Moreover, given the wealth of knowledge and information afforded by the internet nowadays, one is likely to find online guides on CFD trading that will come in handy and help to determine which focus would work best for you. Additionally, these guides often offer examples and elaborate on the rationale or thinking behind the decision-making process, which can guide your thinking in the future as well.
Some people have noted that they prefer CFDs because it takes away the risk that comes with the ownership of the asset, whilst still having the potential to profit from its future value. This is because CFDs only take into account the price change between entry and exit date.
Getting started in 2021
Due to the fact that just about anyone can get started with CFD trading, provided that they have done the necessary research and settled on a reputable trading platform, it is gradually gaining much traction as an investment option. To get started with trading CFDs, you need not be an experienced broker or professional trader. As already noted, taking the time to do the necessary research and understand the markets is crucial. Some people make the mistake of starting to make trades without the basic knowledge, which puts them at risk of making considerable losses. However, practising on a demo account is worth considering, as it is a great way to open yourself up to the markets and virtual currencies, whilst honing your skills before investing real capital.
Once you have gained confidence, you can start by picking a small number of markets to invest in before diversifying. Thereafter, consider your position sizing. Industry insiders advise that you risk a minimal percentage of your total capital on each trade. This will give you leeway to explore and make mistakes without losing too much of your initial investment. Further, to reduce the risk associated with your trading efforts, always use stop-loss orders. This means that your trades will automatically close if your position hits a specific level of loss, which is something that even experienced traders prioritise. One of the main drawcards of CFD trading in 2021 is that they allow for speculative trading, which means that you have the option to open a short position and get positive results when the price drops. With that in mind, some may even say that CFDs are great for those looking to capitalise on and take advantage of seemingly bad news on the financial markets.