Top 6 Reasons Why CFD Trading Is Perfect For Beginners?
Being a beginner in the trading industry seems a bit complicated. There are many things to learn and skills to hone. However, the most important thing is that you have a lot of opportunities ahead of you.
But before anything else, you need to study. If you have previous experience in traditional trading, you can use it when you dive into the world of contract for differences (CFD).
A contract for differences (CFD) is a literal contract between two parties wherein the buyer must pay the seller the price of an underlying asset between the closing and opening of a position. It’s different from traditional trading since the buyer is only required to pay a partial amount of the underlying asset to be able to start trading.
However, the catch is that since you’re a partial owner, you don’t have any rights or ownership to the entire asset. But the good news is that you can still earn when you trade.
So if you need more reasons why you should try contract for differences (CFD) trading, check the list below!
1. You can take short courses before trading
Do you already know a few things about the contract for differences (CFD) trading? Of source, it’s helpful, but there are other things you can do to increase your knowledge. Nowadays, people can easily learn from the internet.
As a beginner, you have three options on how you’ll learn about the CFD and other forms of trading. These include taking short courses, joining forums, and navigating trading platforms.
First, you can take short courses, specifically about the contract for differences (CFD). It’ll enable you to ask questions, learn with other trading beginners, and learn the proper way. Then, you can join online forums to get to know the latest trends in CFD trading. And finally, look for online trading platforms and brokers that offer a free demo account so that you can practise CFD trading in real-time.
2. You can trade using margin and leverage
When you’re about to start trading a contract for differences (CFD), you should know that it works on margin and leverage. It might be confusing at first, but the margin is just the percentage brokers require you to pay so that you can start trading. Meanwhile, the leverage is the rest of the percentage you “unintentionally” borrowed so that you can start trading.
But although there are good sides to trading CFD, there are also some negative effects. For instance, not only your earnings can be magnified but also your losses. But if you’re willing to take the risk, you can also end up on a positive note.
3. You can create your strategy
You may already know the two main types of CFD trading strategies, long buy or sell short, as you can also use them in trading the others.
Buying long is when you believe that the price of an underlying asset will stay on top. So it makes you keep on trading. Furthermore, before you agree to buy a contract, you must already decide if you’re going to keep your opening position for the long term.
On the other hand, selling short is when you sell your contract once the price of an underlying asset went down. In this case, you can sell your contract and make some money.
4. You can transact at low costs
Compared to traditional trading, you can transact CFDs at low costs. Some trading platforms reduce their fees if you’re going to avail of CFDs. In addition, as mentioned before, you’ll just have to pay for the partial price of the underlying asset and not the whole price, so you’re just investing at a minimal price.
5. You can trade similar to the actual market
Although you don’t have the rights to the underlying asset, your trading pattern still depends on an actual market. Whatever the market dictates, the same applies to what you’re trading.
For instance, if you want to buy a share of Apple, even if you don’t technically own the share when the price of stocks goes up, you still win. And nowadays, CFD trading applies to almost every trading instrument, so it’ll be an easier way to trade whatever you want to.
6. You can trade without any requirements
In traditional trading, you’re usually required to trade during the day or when the market is open. But once the market closes, you’re not allowed to open a position. In addition, there is a required minimum amount to place a position. Also, you’re not allowed to trade on certain accounts if you don’t fulfil those requirements.
Meanwhile, the contract for differences (CFD) trading is not bounded by these requirements. You’re not limited to day trade, and no minimum amounts are required before you can place a position using an account.
Are you ready to take the next step and try contract for differences (CFD) trading? If yes, you should start studying and practising to create the strategies once you’re in the game. Let us know if you have more tips about CFD trading for beginners by leaving a comment below!
ABOUT THE AUTHOR: Aliana Baraquio is a web content writer at FP MARKETS, a global Financial Technology services Foreign Exchange (Forex) and Contracts for Differences (CFD) broker established in 2005. She also loves reading about interior design and home makeovers.