The run-up to CFD lift-off
One of the qualities of CFD trading that keeps people interested is the fact that it allows traders access to the financial markets without the need to own any actual assets. When online trading with CFDs, traders never actually purchase any company shares, for example any shares in airline company Lufthansa. Rather, what CFD traders work with is the change in Lufthansa share prices in both directions—increases as well as decreases. Let’s say a trader has reason to believe Lufthansa shares will be shooting up in value in the next week because of a change in company management. With a price increase in mind, he’d open a “buy” deal on Lufthansa shares for this time period, putting in an amount of money he decides on beforehand. If indeed the share prices rise, when he closes the CFD deal at the end of the week, his gains will be realized.
CFD traders are also able to do the same thing in reverse. For example, if the trader believes that, due to the emergence of a new viral strain, Lufthansa shares will take a dip in the next two weeks, he could open a “sell” deal on shares for this period. In this case, he would only realize gains if Lufthansa’s share price dropped within the timeframe. This possibility of keeping up a dynamic trading portfolio even in times of market instability has appealed to many traders in recent pandemic-hit times. For those who are still building up their understanding of CFD trading, let’s look a bit more closely at the way it works.
Prudence Pays
Traders with experience know that rushing into things is seldom a good idea. Before anything else, it’s advisable for traders to decide on realistic goals, establish what their risk threshold might be, and pinpoint the amount of capital they have available. This way, they will be saved from overcommitting themselves and finding they have lost much more than they expected. Even if opening a certain deal looks promising and fairly secure, the possibility of an unexpected outcome should be kept in mind at the beginning. After all, opportunity is balanced with risk in all forms of trading.
Thus, the online trading platform you choose should be licensed and regulated. Many of the brokerages out there are reliable, but you must make sure that a regulatory body is overseeing your broker’s activities so you can rest assured your money is being kept safely and discreetly and that all legal requirements are being met. If you’re considering a particular brokerage, find out if they’ve been in the business for a while already, and if customers are giving them good reviews. Also, before handing in your personal details to a broker, check that they’re equipped with effective encryption systems like firewalls so all your information will be safe.
Once you’re signed up to a platform, the next step is still not to open a deal. First, spend time reading the educational materials your broker should provide you with, getting clarity on all the fundamentals of CFD trading and how the financial markets work in general. Give a careful read to the market analysis which you should also find available, with the aim of getting used to the terminology and the kinds of thinking you’ll find in the world of the financial markets. Take in a good helping of the latest market news on all fronts: new product launches from big companies, company share prices in the last few weeks, news on the big currency pairs like EUR/USD or USD/JPY, and the latest on interest rates.
Opening Deals
Once you’ve opened your CFD deal, use the platform to monitor your position. Keep up to date with market news relating to your instrument of choice, and stay tuned to live rates. Make use of your platform’s trading tools like trading signals, live charts and the economic calendar to make sure your finger is on the pulse of the market until the time you choose to close your deal.
Next Steps
With a bit of time and experience, you may feel ready to expand your portfolio and explore other markets. Should you choose to begin online trading on the iFOREX platform, you’ll find you’ll be able to learn about markets like commodities, shares, indices, ETFs, cryptocurrencies and forex pairs in a hands-on, accessible way with video tutorials, PDF guides and one-on-one training. iFOREX has over two decades of experience in the business as a regulated brokerage and has always prided itself on its customer service. Finally, before you settle on a broker, make sure to compare its platform with the sleekness and intuitive usability of iFOREX’s renowned, home-made platform, which can be used in mobile or desktop format.
