Trading in 2021: Becoming a CFD Trader

Trading in 2021: Becoming a CFD Trader

Becoming a CFD trader requires some theoretical knowledge and plenty of practice. There are many platforms out there that allow you to trade using this method with ease. To understand what CFD trading is and how you can become a trader in 2021, continue reading this article.

What is CFD trading and how it works

During online CFD or contract for difference trading, the opening and closing asset price difference is paid out to the seller or buyer, but they don’t acquire or own the corresponding asset. Because CFD is intended for making a profit based on the price difference instead of directly buying a certain asset, you can earn more by investing less. When you engage in CFD trading, you have to make predictions whether a price of a certain asset will increase or fall in the near future. Based on the nature of an asset, it can be associated with high or low volatility.

What are the advantages of CFDs?

Similar to other trading options, this type involves a certain level of risk in addition to a chance to make a significant profit. Some of the advantages associated with CFDs include such:

  • You can trade in both directions

In CFD trading, you have an opportunity to go long and short. It means that you can make predictions on both the increase of the price and its fall.

  • It offers a high level of convenience

One of the main reasons why traders choose this method is its convenience. It is possible to trade while staying at home and using your usual devices. You don’t need to purchase specific hardware, be in a certain location to trade, or have space for storage.

  • It requires a smaller starting capital

As opposed to some financial markets, CFD trading doesn’t require huge capital to start. A lot of people are attracted to this trading because of its lower entry threshold.

  • It offers higher leverage

Another attractive quality of CFD is its higher leverage. You can multiple your market exposure when you open a position that is significantly higher than your original invested capital.

What you should do to start trading

The steps required to begin trading include the following:

  • Choosing the right CFD market

At the moment, there are many asset classes for you to select from. The choice should depend on your understanding of this category, previous experience, and the situation on the market. The assets include stocks, stock indices, commodities, Forex, and cryptocurrencies. 

  • Going long or going short

When using any platform, you can choose whether you want to sell or buy assets. You can make predictions on whether there will be an increase in prices or if they will fall.

  • Choose the CFD size and set limits

You should choose an appropriate investment size based on how much risk you can tolerate and on the minimum amount associated with a certain asset.

  • Manage your risks by using instruments

It is essential to use tools for risk management when trading, especially as a beginner. There are different options out there, including using a trading bot and specific stop-loss tools that are activated at certain times during trading.

  • Always monitor your trades

Trading happens in real-time, and you can see the changes on the market as they take place. You can close your positions whenever necessary or you can add new ones. You can do this even before your stop-loss instrument is activated.

Online Trading Becomes Easier

These days, CFD trading is extremely easy to access, thanks to the abundance of trading platforms. At the same time, it is a process that requires careful consideration and preparation. It is important to learn about the risk management tools, strategies, and instruments. If you are a beginner, it is better to start with less volatile markets and maybe even practice using demo accounts.

What do you think about CFD trading? Have you ever tried this method? Share this article with others and tell us your thoughts in the comments below!

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