There are lots of different ways to start trading but one of the most popular is with CFDs or contract for difference.
With CFD trading, there is a much lower capital needed to start trading and a huge range of assets on which you can exchange. Here are some beginner’s tips to CFD trading and how to get started.
What is CFD trading?
With Contract for Difference, you don’t have to own the asset that you are trading but instead, use your judgement and experience to decide if that asset is going to rise in value (called going long) or fall in value (called going short).
With CFD trading, you only need to put down a small percent of the total value of the asset. So, if you are trading with a share that sells for 100 pence each, and you only need 5% to trade, you only need 5 pence per share to start.
But, how do you make money from it? If you are right in your prediction, about the value of the asset, the seller pays you that difference. If you are wrong, you pay the seller the difference. The difference between the selling price (or the bid) and the buying price (or the offer/ ask price) is called the spread.
The number of markets that you can trade on is massive and in some cases, you can trade at any time of the day, any day of the week. Some common assets include:
- Shares (or individual equities) which are the shares of limited companies such as Apple or Facebook that are floated on the stock market, so anyone can invest in them
- Stock indices are groups of stocks that are the top companies in a geographic area such as the UK100 or the US30
- Commodities can include things like gold and silver or crude oil but also agricultural and food products
- Currencies are traded in pairs and you trade on the first named currency in the pair
How to place a trade
Starting with CFD trading is very simple. You need to find a platform that you like that offers safety and security along with plenty of educational resources. Wilkins Finance is a perfect example where you can safely start making CFD trades while learning about the process.
You must study before you start. There are lots of components to a successful CFD trading strategy that you need to learn and even test before you start using real money. You need to learn how the markets react to different factors, what stop losses are, and specialist information. Once you have this knowledge and are confident, you can easily start placing trades through the site.
Building a strategy
Starting to CFD trade is very simple and quick but doing it successfully takes a little more work. You must study beforehand and formulate strategies about how you will conduct your trades. It avoids the instinct to trade on emotions and gut feelings – which are rarely successful. You want to plan when to enter a trade but also when to stop it.
You also want to start a trading journal or diary where you document all of your trades. Note down factors that made you choose a particular trade and whether they were successful or not. That way you can learn from what you do and refine your strategy. The best traders are constantly learning and updating their CFD trading strategy to get the best results – and the most possible profit.