Let us start at the beginning. The initials CFD in full mean contract for difference. This is a trading strategy that allows traders to benefit from the price change of a particular investment vehicle without having to own it.
For those with knowledge on financial knowledge, you can see that CFD trading is similar to derivative trading. This means that you can profit or take a loss on a financial asset without owning it but having invested in it through a contract.
Who offers CFD trading platforms?
CFD trading is one of the most complex financial transaction that one can get involved in. Many of the providers ensure that they let their customers know this beforehand.
One of the most popular and long serving provider of CFD trading is Saxo Markets. They have a presence in Hong Kong and many other markets around the country. As a financial market intermediary, Saxo Markets allows its customers to learn how to trade and profit in CFD and many other financial markets.
How CFDs Work
If you want to trade CFD, your first step is to choose the best financial market broker for your needs. There are several aspects and qualities that you should consider as you choose your broker. These include, reputation, expertise and review from other customers.
Once you have chosen a broker, you then need to open a live trading account with them. Fund your account and talk to your account manager to get all the details you require to carry out a successful CFD trade.
When you have opened your account, you can now seek the asset that you want to invest in by means of CFD.
Set up the contract with your broker. This means that you put up a percentage of the value of the asset and also pay a commission or fees to your broker for facilitating the transaction. At this point also, agree on the entry price of your position, so that you can easily determine the movement in price of the asset you have invested in.
Now that you have an open position, it can only be closed when it satisfies your profit or loss taking needs. Also, your position in the investment can be closed by your automatic stop loss.
When you close your position at a profit, your broker will pay the money that you made. On the other hand, if you make a loss on your position, you will have to pay your broker the remaining amount on your contract.
Components of a CFD trade
To successfully carry out a CFD trade, there are some components that must be available. These are:
The major component of a successful CFD trade is the presence of an asset to trade. It could be a stock, a currency pair or even a commodity among other numerous financial assets.
Once the asset is identified, you can now start the CFD contract with your broker.
Price and spread
What is the price of your identified asset and would you rather buy it outright or use a CFD to profit from it? If you prefer to buy the asset and the price is within range, and you believe you could make a quick profit from it, buy it.
Spread on the other hand refers to the difference between the buy price the sell price of an asset. It represents the price at which you take a position and the final price when the position of the CFD closes. IT determines how much make you make in profits or losses from your trade.
Commission of fees charged
For every transaction that your broker facilitates you to make, they charge you a commission or fees based on their policies. CFDs are part of the services offered by brokers that they make money from and will involve any of these charges.
CFDs are great vehicles to use to invest and profit from many financial assets. All you need is the right information and expertise to use them.