Contract for Differences or CFD is an agreement between two parties by mutual monetary calculation based on the difference between contract’s opening and closing prices. CFD is a derivative instrument, having all the benefits and risks of online trading, but without actually owning the underlying instrument. Nowadays, CFD online trading is the most popular way of CFD trading. There are many trading brokers who provide online CFD trading, which make CFDs available for every trader all over the world.
What is CFD Online Trading?
CFDs provide investors with an opportunity to speculate on market fluctuations. CFD price depends on the underlying asset. CFD online trading allows investors to profit from falling and rising prices by opening short and long positions, respectively. CFDs can be used to hedge portfolios too. CFD provides leverage, allowing trading with higher volumes with low investment (Learn more about What is Leverage in Trading). CFD trader must maintain the minimum margin requirement for open positions. If the amount of free money on trader’s account is lower than the margin, the event Short Margin occurs and the broker closes those positions for which the margin is not enough. CFD trading has many advantages, but it also carries a high level of risk.
Tips to Follow while Trading CFD Online
As it was mentioned above, CFD online trading can be very profitable and risky at the same time. So, traders need to follow some principles to benefit from CFD online trading and minimize losses. Let us bring some tips that help to succeed.
- Trade with lower volumes at the stage of learning. Control overall volume of the open positions in order to avoid big losses.
- Trade calmly, following the trend, as impulsive decisions can bring to unjustified losses.
- Calculate in advance where to enter and exit a deal before starting to trade the instrument.
- Cut losses quickly when experiencing losing deals.
- Set Stop Loss order and do not change it.
- Check trading positions regularly, even if you have set stops and other limits.
- Keep a CFD trading journal. This will help in learning and forming trading strategies.
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