CFD stands for Contract for Difference, which is a type of derivative. CFDs are traded on margin, which means you can take advantage of rising and falling prices without owning the underlying asset.
CFDs are often described as sophisticated, risky financial products that require far less money than buying or selling shares. They offer investors more significant opportunities, but they also come with greater risks.
Open an account
CFDs are traded through your online trading account. The CFD provider you’re dealing with will credit your live-streaming CFD trading account after allowing for a clearing time of three days. You can begin trading immediately on margin, which means borrowing to invest to gain more than you originally put in potentially.
Your CFD provider will give you the option to deposit money into your account for you to begin trading. Deposits are made using the same funds as your bank accounts, so if you’ve got an online or mobile banking app on your phone, this is where you’d go when you want to make a deposit.
Select an asset
CFD providers typically offer around 50-100 different assets to trade within various market conditions, both long and short-term. You can select which assets you want by clicking on their name or image when it’s presented to you under ‘Products.’
Set up trade limits
The next step is called setting up trade limits; this means deciding how much of your money is available to use when trading CFDs. You mustn’t exceed your available funds; otherwise, the trade could potentially trigger a margin call which would require you to deposit more cash into your account pretty quickly for it not to be closed out.
Set up trading parameters
You must initially set some trading parameters before beginning live-streaming CFD trading. These are usually time-based, such as setting limits for specific periods of the day or week but can also be specific events linked with an underlying asset. For example, if the financial market thinks there is a possibility of another Brexit vote happening soon, they will change their pricing accordingly. Investors would then need to decide whether they’re likely to be affected by such a vote and how much it could affect the price of an asset they own.
Trade using technical analysis
Technical analysis involves understanding what’s causing your asset to move in value and where it’s likely to go next; this can be done through research, studying charts and patterns and finding out as much information as possible. It gives investors insight into what will happen with an underlying asset rather than relying on gut instinct or emotion when trading CFDs.
Start live streaming CFD trading
Once you’ve done all the above, you can make live-streaming CFD trading decisions with your money.
Close a trade when you’re happy with the results
Suppose you make a good decision, congratulations. But if it doesn’t work out quite how you expected it to, don’t worry – all trades can be closed at any time while they’re still open. Meaning you’ll only lose the small amount of money that remains in your account after placing an order instead of taking a hit on the whole lot.
When deciding whether or not to close a trade, it’s essential to consider what might happen if you keep your position open for longer than expected; this is known as ‘staying in too long.’
Manage risk by setting up stop-loss limits
If you decide to keep an open position beyond its usual expiry time, you can do so by setting up ‘stop-loss limits’; this means deciding how much of a loss you want to take on a given trade before stopping it. It ensures that your account doesn’t get stuck with a negative balance, which would require another cash deposit for you to continue trading.
Withdraw your earnings from CFD trading
Cash earned through trading can be withdrawn from CFD providers at any time and put back into the bank accounts linked to your online or mobile banking apps. The withdrawal amount you can transfer out is usually limited, though, so make sure not to exceed this limit or else it could lead to problems when trying to withdraw large sums over a short period.