Everything You Need to Know about CFD Trading 2022

CFD trading began in the late 20th century as investors sought to leverage gold. This low-risk alternative to direct trading has grown in popularity over the years. You could be safer making a CFD investment than buying assets directly.

While CFD trading presents unique opportunities, you must understand several concepts before taking it on. To guide you, we will cover the following:

What is CFD?

What are CFD trades, or what are CFDs trading?

Financial instruments available

You can do this trading in a few minutes if you are on an intuitive platform like Mitrade.

You will do fine if you are a professional trader but new to CFD trading. On the other hand, you might find investments in CFDs much better if you are entirely new to trading.

Let us begin at the fundamental level, what are CFD in trading? A CFD stands for "Contract for Difference." It occurs between an investor and the provider.

The investor enters the contract to earn or pay the difference in the price of an asset between the opening and the closing periods. This contract allows for profit even when the asset’s market value decreases.

Let us assume you want a CFD on asset A with an opening price of $1. You will earn or pay the provider if the asset’s value increases or decreases at the closing. That also depends on which direction you opted for when entering the contract.

Now that you know the meaning, we can proceed to explain what is CFD trade.

CFD trading occurs similarly to direct trading, where you buy the actual asset. However, you do not own the asset directly. The provider may or may not hold the asset, depending on the modus operandi.

Instead of buying assets, you pay for units that represent the asset. The price of a unit is equivalent to the asset's cost in the original trading market. Let us look at some key features.

The following will not only explain what is a CFD trade but will also cover what is CFD trader. You will know the differences between CFD investors and direct traders.

Long or Short Position

A long position means you opt for an increase in the asset’s price at the close of the contract. On the other hand, a short position means your pick is for a decrease in the price.

You will gain in long position if the price goes up. However, a price increase in a short position signifies a loss.

When trading CFDs, you can earn more than your original deposit. Let us assume you enter a long position for asset A at 4000 points and want the exposure (total worth) of $40,000. That means you will need 10 CFDs, i.e., 10 x 4000 points.

Providers often have leverage, and you can find one as high as 99:1. Leverage simply means the provider funds the remaining amount while you pay a part, called the “margin.” In the case of 99:1, you only need to deposit $400 (1% of $40,000).

READ MORE about LEVERAGE and MARGIN in TRADING:

https://in.mitrade.com/others/learn/leverage-and-margin-in-trading 

While knowing what are CFDs in trading is crucial, you must also know the assets you can get. In a nutshell, you can get any product available in direct trade. CFD trading does not deal with novel products or assets.

Common products include:

⭐ Forex

⭐ Stocks  You can invest in the shares of the world’s top companies without owning them.

⭐ Commodities  including oil, gold, natural gas, etc.

⭐ Indices like NASDAQ, Nikkei, and Dow Jones.

Trading these products without owning them carries a lower risk. Also, you can trade stocks not listed on your local stock exchange. For instance, you can trade a US stock from India by making an investment in CFD.

You need a broker or provider to pick an asset and enter the contract. Mitrade is a robust platform where you can trade Forex, shares, commodities, and indices. It also offers tools like forecasts, market data, trading analysis, and risk management, accessible on Android or iOS devices.

Regardless of how many products your preferred broker lists, always go with the one you know. Better still, do thorough research and use forecasting and analysis tools before creating a contract. That way, you stand a better chance of benefiting from your chosen position.

⭐ Opening Your First CFD Deal

Now that you understand what is CFD in trading, let us show you how to create your first contract. The process is relatively simple and much quicker if you have determined the product beforehand.

These are the steps in CFD trading:

⭐ Choose the product

As mentioned earlier, you can pick any product, from company shares and commodities to performance indices. Mitrade’s intuitive platform has all the products you can imagine under the “Markets” section.

⭐ Fund your account

You must deposit before making a deal if your account is not funded. Thankfully, you can deposit any amount you desire to trade. With Mitrade, you can fund your account using several swift payment options, including Skrill, MasterCard, WorldPay, etc.

⭐ Choose your contract size

With leverage, you can get a more significant contract than your deposit. The example of asset a mentioned earlier shows you can get an exposure of $40,000 while depositing only $400. That is because of the 99:1 leverage, but some brokers offer even higher.

⭐ Choose position

If you think asset A's price will increase, you will open a “sell” deal or a long position. A “buy” deal or short position will come in if you think the price will decrease.

The final step in CFD trading is closing the deal. Thankfully, you now understand the concept (what is a CFD trading). You have gained if you picked a long position, and asset A’s value increased to, let’s say, 4300 points.

The total profit will be $3,000 (i.e. 300 x 10 contracts). You see how profitable this trading can be, depositing $400 and gaining $3,000. However, if the asset loses a value of 300 points, you must pay the broker or provider $3,000.

In this short piece on CFD trading, we have covered or answered the crucial question, what are CFD trading? You have also seen how profitable the system can be if you get your prediction right. Whether experienced in trading or new, Mitrade has all the features you need.