CFD Trading- Definition, Benefits And Trading Strategies
What does it mean by CFD trading? Well, CFD aka Contract for Difference can be defined as the agreement in between 2 parties (buyer & seller) -where the seller would pay the buyer difference in between current asset value & its value during contract time. In case the difference comes negative, the buyer would pay the seller. CFDs are the financial derivatives (Trading Options) which permits the trader to cash in on prices going up or going down on the underlying financial tools.
Now, let’s look at the advantages of CFD trading-
· It’s a cost-effective venture since CFD can be traded on margin.
· CFD trading allows flexibility, since here the trader is trading on the share’s or index’s price movement sans owning it physically.
· CFD allows you to trade on a large spread of assets , including indices, sector and shares.
· You are allowed a 24 /7 trading facility with the global markets.
· CFD traders can deploy a stop-loss guaranteed facility to reduce losses.
Trading strategies-
The most important aspect of a successful CFD trading is proper money management. The experts always advise not to deploy your entire available capital while trading CFDs. The usual rule here is to trade just 10% of the entire capital sum in the leveraged products- the remaining share would go for lower-risk investments. Suppose, you have got 100,000 USD as capital and you have planned 10,000 USD (10%) for high-risk trades. Among these, you can risk around 2000 USD for each CFD you are trading.
In determining a compatible position size, the trader should be careful about the risk he is about to take through the calculation of stop loss. In case your stop loss calculation presents you a loss beyond your affordability, you have to reduce the position size to ensure a compatible risk level.
Now, let’s look at the advantages of CFD trading-
· It’s a cost-effective venture since CFD can be traded on margin.
· CFD trading allows flexibility, since here the trader is trading on the share’s or index’s price movement sans owning it physically.
· CFD allows you to trade on a large spread of assets , including indices, sector and shares.
· You are allowed a 24 /7 trading facility with the global markets.
· CFD traders can deploy a stop-loss guaranteed facility to reduce losses.
Trading strategies-
The most important aspect of a successful CFD trading is proper money management. The experts always advise not to deploy your entire available capital while trading CFDs. The usual rule here is to trade just 10% of the entire capital sum in the leveraged products- the remaining share would go for lower-risk investments. Suppose, you have got 100,000 USD as capital and you have planned 10,000 USD (10%) for high-risk trades. Among these, you can risk around 2000 USD for each CFD you are trading.
In determining a compatible position size, the trader should be careful about the risk he is about to take through the calculation of stop loss. In case your stop loss calculation presents you a loss beyond your affordability, you have to reduce the position size to ensure a compatible risk level.