Trading with CFDs
Contract-For-Difference, commonly known as CFD is a financial derivative that gives traders the opportunity to profit from price movements rather than owning an asset. It is an agreement between two parties to pay the difference between the underlying asset’s current price and its price when the trade is exited.
Best Brokers For CFD Trading
What is CFD Trading?
CFD (Contract for Difference) is a type of derivative trading. Derivative trading is the trading of securities derived from real world assets (underlying assets) like market indexes, interest rates, currencies, commodities, bonds, and stocks.
In derivative trading, you do not trade with real assets; instead, you use them as the basis of your trades. The securities you trade are based on the platform and/or the type of derivative trading you are working on. Types of derivatives are future contracts, forward contracts, swaps, options, and credit derivative.
In contract for difference, you predict or speculate the rising and falling of the underlying assets you choose. You will earn based on the correctness of your prediction. Unlike regular trading, you do not buy or sell underlying assets with CFD trading. What you trade, buy, or sell are CFD units; however, the price of each share during trade is still the same with the asking price from the underlying assets.
One of the reasons it is popular is that it can be done over-the-counter (OTC) or in an exchange. Of course, trading OTC is a risk if you do not find a trustworthy broker to deal with.
Another reason is that it can be immensely profitable and does not need a huge capital. Yet another advantage with CFD trading is that most brokers have access to products available in international and major markets.
CFD trading is mostly done online. And as with almost all kinds of online trading, there are risks involved. However, it is negated by the low margins brokers offer — usually around 5% to 10%. This means that if there is an asking price of $10 per share and a 5% margin, the trader only needs to pay $0.50. The rest, which is $9.50, will be borrowed from the trader.
Aside from the low margin, CFD brokers tend to not require huge capitals. Initial deposits are as low as $100 to $200. Also, CFD brokers do not require additional fees. These brokers typically get their money off the spreads done by traders.
In a nutshell, CFD trading makes playing with shares and stocks more accessible to the masses. In addition, it is a good alternative for short-term traders. The initial capital is not high, the margin is low, but the potential returns are high. However, one disadvantage in CFD is that the high leverage can easily make losses exponential.
Is It the Right Time to Trade with CFDs?
Yes, it is the right time to trade with CFDs. Last year, the stock market achieved its best record in more than five decades. The outlook regarding the stock market in the following years is good. And the trend will continue for a decade, according to analysts.
Since other markets, like the stock market, are underlying assets used in derivative trades, their movement considerably affects CFD trading. And because the stock market is following a stable trend, it is easier to make predictions on how instruments will move from today until the next 10 years.
This still holds true even if you include the global issues like Brexit and escalating concerns among Russia, China, the US, and North Korea.
Of course, if those problems worsen, the global economy will direly change for the worse. So, keep your fingers crossed.
On the other hand, one of the biggest reasons for the great market forecast is the excellent GDP growth of most countries and the economical valuations of foreign equities.
However, it is predicted that US-based stocks will be mediocre and expensive with high interest rates. It is best to focus abroad. Also, when it comes to stocks versus bonds, stocks will definitely dominate this year.
The best stocks to watch are technology stocks. For the past three decades, logic chip manufacturers were just too many to count. Today, only three remain strong and favorable: Intel, Taiwan Semiconductors, and Murata Manufacturing. Those companies produce the needed components to create computers, cellphones, and other devices that require computing power.
Another industry to watch is the gaming and app development industry. Here, you have Nintendo, a massively successful developer of games and gaming hardware. Also, you have China’s Tencent, a leading developer and provider of mobile gaming services and messaging applications such as WeChat.
Of course, you should watch out for these industries: oil, gas, energy, health care, and financial services. A few of the specific names you should check out are Schlumberger, Weatherford International, Alexion Pharmaceuticals, and Visa. These industries and companies will not be going anywhere anytime soon. In fact, they are expected to perform better in the coming years.
For some, trading CFDs is a gamble. However, if you have the information and knowledge about the instruments you are using to trade, then your risks of losing your investments in CFD trading become close to nil. As long as you know what and whom you are dealing with, it will be always the best time for you to do CFD trading.
How to Trade with CFD: CFD Explained
To start trading with CFD, you must find an online broker that provides CFD trading services. Then, prepare an investment capital that you need to deposit to the broker. Typically, $100 to $200 should be enough as an initial deposit. However, some online brokers allow deposits starting from $10 to $100.
In this site, you will find most of the popular and reputable brokers on CFD trading. Signing up with any one of them only take a minute. And once you’ve deposited the amount needed, you can start trading immediately.
The good thing about choosing brokers from Binaly.com is that the site reviews each broker one by one and provides detailed information about them, thus enabling clients or readers to make a sound decision on what company will fit their needs.
In fact, some online brokers give clients demo CFD trading accounts. These demo accounts are especially helpful to newbies, since they allow you to learn how their platform and CFD trading work. Usually, these demo accounts start with $10,000 credits. All earnings and losses in the demo accounts will not affect your main account. And of course, those demo account credits are not cashable and useable in real trades.
It is advisable to start with a demo account so you can familiarize yourself with CFD trading how-to tips and tricks. Once you have access to the trading platform, you need to choose a market. You can select from the companies mentioned in the previous section or you can also trade in other markets, such as Forex.
The advantage in CFD is that you can trade and profit in any given scenario. If the market you chose is appreciating, you can choose to buy (go long) and profit. If the market you chose is depreciating, you can choose to sell (go short) and still profit.
Then you have two know the two prices presented in a trade: the bid (sell price) and the offer (buy price). The difference between the quoted prices is known as a spread.
After deciding your move, you need to specify the number of CFD units or trade size you want to trade. Do note that 1 CFD unit is equivalent to 1 share of equity trade from the market you chose. And because CFD units are leveraged products, you only need to pay for the margin, which will be tremendously smaller than the actual prices of the underlying assets you are buying or selling.
Thankfully, trading platforms allow traders to put a limit and stop orders on their trade. These orders help the trader minimize and manage the risks of losing his potential losses. For example, if you want to go long but you feel that the market may suddenly dip, you can set a specific amount or level where your trade will automatically stop to prevent further losses that may become amplified if the market goes even lower.
How to Choose the Best Broker for CFD Trading
It is no secret that there are a lot of brokers popping up on the Web. Some are trustworthy and most are downright shady. Fortunately, this site’s goal is to sift out the bad brokers from the reliable and popular ones. After all, it is this site’s job to guide and help aspiring and even experienced traders on CFD trading techniques.
Going back on how to choose the best broker for CFD trading, the number one rule here is to find the broker that matches your interests. Do note that not all online brokers allow CFD trading. Some do allow CFD, but are limited when it comes to the markets that they have.
Second, think about your money and your safety. If you are going out of your way to find brokers not listed in this site, be sure to perform extensive background checks. Primarily, it is advised that you look for different CFD online guides to check company reviews.
However, do not limit your background checks using aggregate review sites. Check out the social media pages of the brokers you are researching. Reviewing a broker’s social media pages is a great way to know and see reviews from real people. After all, some aggregate review sites may be affiliates that are paid to fabricate false and generic reviews.
On the other hand, you should know that aside from personally reviewing the brokers listed in this site, the site assures you that all of them holds valid operating licenses from at least one financial and national authority.
Also, since CySEC (Cyprus Securities and Exchange Commission) is regarded as one of the trustworthy and fair securities and exchange commissions in the world, most of the brokers listed in this site are CySEC-regulated and registered in Cyprus. As an added bonus, all brokers and their respective clients registered under this country can trade in all European Union states, which means you can still do CFD trading UK without too much risks and worries before Brexit is finalized in 2019.
At the end of the day, all trustworthy brokers are equal, and each has its own uniqueness and quirks to match different traders. It is up to you to know which one is the best for you. Do know that the brokers in our site are 100% real and legitimate.
However, note that despite all the brokers here are licensed, not all of them offer demo accounts. Also, you do not need to stick to one broker. Many of this site’s visitors create multiple accounts to reap all the benefits that each of the brokers here provide.
Why You Should Get Involved with CFD Trading
There are multiple benefits mentioned already in the previous sections. However, if you are a new or aspiring trader, the biggest benefit you can get from CFD trading is its accessibility.
With CFD trading, you do not need a large capital when you start. Since most brokers only require small deposits to allow you to perform real trading, almost everybody with spare cash can start trading CFD.
Also, CFD brokers usually give access to their demo accounts for free. These demo accounts are excellent teaching and training tools for beginners. It is also a good tool for veterans that are looking to trade in a different market they do not specialize in.
The demo accounts can help you become familiar with the broker’s platform. With this, you can decide if you want to stick around and deposit money or find a new broker with a platform that suits your taste.
For experienced traders, CFD can provide you with a breath of fresh air. With the minimal losses and easily managed risks, you can do CFD trading to escape high-tension trades from non-derivative financial instruments. It is also an excellent alternative to binary options.
Another advantage is that most CFD brokers have access to almost all markets in the world. CFD trading will give you the ability to have greater reach when it comes to monitoring the market you wish to enter.
And again, CFD trading can let you profit two ways. If the market you chose is appreciating, you can earn. If the market you chose is depreciating, you can still earn. It all depends on where you place your money and correctly analyzing the current trends.
Unless you get addicted to CFD trading, you can trade and profit short-term. Most brokers have low minimum withdrawals, which mean you get all your money once you want to quit. Also, you are not buying actual assets, just CFD units. This means that once every trade is over, then it is really over. You or the market/company you chose will not owe anything. It is just between you and your broker.
On the other hand, if you decide to let your money stay with a broker and let it grow there, you can become qualified for additional features and advantages. Of course, not all brokers offer such optional features and advantages. Also, be reminded that most CySEC-regulated brokers are not allowed to provide bonuses.