CFDs are rapidly becoming one of the best ways to trade futures and forex, offering fast and easy trading as well as great margins.
With the market constantly fluctuating, using CFDs can be very lucrative. CFD trading has no physical presence in the real world and there is a high degree of safety involved, making it ideal for a new trader.
There are a few things you’ll need to consider before starting CFD trading:
- Trading platform – You can do this online but a good CFD broker will also allow you to do it on their website, in your own time and pace. You can into the right platform when you compare brokers.
- Market spread – The spread, or the difference between the buy and sell prices, is also an important thing to consider. Larger spreads usually lead to higher volumes.
- Margin amount – This is the maximum amount of money that you are willing to put on the market, so it is important to check what level of margin they require you to trade on. The bigger the spread and the fewer margins required the better for you.
Types of CFDs
CFDs are sold by dealers, brokers and financial institutions and include stocks, commodities and indices. They come in two main types:
- Analog CFDs – These are very similar to their forex and futures counterparts and are typically traded over telephone.
- Digital CFDs – The name is a little misleading as they’re not trading in the sense of the stock market, but rather in the sense of smart contracts and blockchain.
Using CFDs to trade forex and futures
Like futures and forex, CFDs are contracts that allow traders to speculate on the prices of the relevant market. They do this by investing in a company, a country, an index or commodity and then allowing them to go up or down.
An example of a CFD is a futures contract that allows a trader to buy or sell the ABC 500 future, for instance. CFDs and futures are both essentially a very small risk in the hope of getting a large return, which makes them very lucrative.
While futures are traded on specific dates, CFDs allow traders to be more flexible in their investments. They can be traded any time, any day, even at the same time as futures.
CFDs have a high degree of liquidity and trading volumes are massive. You’ll be able to trade up to hundreds of thousands of contracts per second and even get the same price as other traders.
A growing number of trading platforms, brokers and trading firms offer CFDs. These firms are also unregulated and there are no trading rules or regulations, so it’s important to look at your options carefully and research the market before entering.
As a new trader, you’ll want to choose a broker that offers the right level of margin, the lowest spreads, and the most trading platforms. You’ll also want to consider their trading language, as most will be accessible to you in English. This is especially important for those new to the world of CFD trading, as many CFD brokers can be very complex and it’s difficult to get your head around.