To many people, trading is something that large hedge fund managers do in their closed offices while looking at seven graphs simultaneously, which is as further from the truth as it can be. Trading is not just one thing. There are several different types and choices, both for the institutional investor and the retail investor. One of the most lucrative investment opportunities for retail investors is CFD trading. Here is a brief CFD trading guide to get you started.
CFD trading stands for Contract for Difference trading, which doesn’t mean anything to an average person. In essence, CFD trading is the purchase and sale of financial stocks without owning the actual asset underlying the system, which sounds confusing. How can one buy or sell something without owning it? The answer is brokers.
CFD is like a prediction that you make for the direction for a particular stock or market. You make money if your predictions become true, and the market moved in the direction you anticipated. This movement can be both upwards or downwards. If you see a market rising in the near future, you predict its rise as early as you can and cash out when you think that the market has peaked. Similarly, if you think a market is going to go down, you predict against it and bail out when you think it can’t get any lower. In both instances, the difference between when you made the prediction and when you cashed out is your profit.
Is CFD the right thing for you?
Your opinion on CFD can go from “this is the best method of trading” to “I should avoid CFD on all costs” purely based on where you get your information from. In reality, all trading methods hold a certain risk to reward factor and understanding your trading knowledge, foresight, and financial limits is the best way of profiting with any method, not just CFD. If you remained vigilant about market-altering factors and tried to stay ahead of the curve, CFD trading will most likely result in a profitable portfolio.
Do your research:
The best advice for any retail trader is to never gamble. What does gamble mean in terms of trading? Going with your “gut feeling,” hopping on the viral trend train, and overall being unaware of the market’s inner workings. Thoroughly research your options before making any investments.