CFD Trading for Beginners

Although many experts saw it coming, the fact that the UK’s economy has now officially entered a double-dip recession highlights how difficult market conditions currently are. One might feel that trading the financial markets in the current climate would be impossible to do without making substantial losses. However, there is a way in which you can make money even in the most volatile markets. CFD (Contract for Difference) trading allows you to trade on commodities and markets by estimating whether their value will rise or fall.

Through companies such as City index, CFD trading works by two parties agreeing on a deal to exchange the difference between the opening and closing price of a contract. Much like spread betting, you can speculate on the rising or falling price movements of thousands of markets, including stock indices, commodities or individual stocks without actually owning the underlying asset. Another thing CFD trading has in common with spread betting is that you can trade on whether the price of that instrument is going to go up or down.

When you choose which way you think your chosen market will go, you can either trade on the value increasing, which is known as going long (buying) or, if you believe the opposite will happen and the market will fall, you can go short (sell). Having the ability to do both while also being able to choose from well over 12,000 different markets have helped to make CFD trading more appealing to an increasing number of traders worried about the added risks that come with conventional stock market trading.

With CFD trading, as it’s a leveraged product, you only have to deposit a small amount of the full value of your trade, in order to open a position. Something in the region of 1%-10% of your full intended trade value means that if your trading is successful, you could stand to make a big profit. Remember, however, that it is just as easy to make a loss if the trade goes against you. Meanwhile, if you’re new, you might be encouraged to hear that CFD trading is free from Stamp Duty in the UK, and 24-hour trading means you can also trade whenever you like, unlike with trading the traditional way on the stock markets.

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