CFD trading is a type of trading that is very popular among day traders. CFD certificates allow them to make higher profits than they would be able to make if they traded with the underlying assets themselves. Different traders usually focuses on different types of trades. It is common that some traders focus primarily on stock based certificates while other trade currency or commodity based options. Mimicking this behavior is a very good way to increase the chance that you will be able to earn money trading CFD:s. By focusing on a few assets you will be able to know a lot more about them and this will in turn allow you to better predict future market movements. This is the key to successful CFD trading.
Short term speculation
CFD certificates can be used for long term investments but it is not what they are meant for. They are designed to facilitate short term speculation. Most CFD positions are closed the same day they were opened. It is possible to hold a CFD position over night. To do this you will have to pay an overnight fee. You pay this every night you keep the options. The overnight fee is usually based on the interest rate.
Holding CFD certificates long term is very high risk and it is essential that you use stop loss features if you hold long term CFD positions.
The most common way to trade CFD certificates is to quickly move in and out of the market to make a profit on small movements during the day.
The spread is the fee the broker charges to make money on their service. The spread is a difference between the market value of the asset the CFD is based on and the CFD itself. This spread is usually between 0.5 and 1 point. Some brokers can however offer higher or lower spreads. When you buy a CFD then you need to beat the spread before you start earning money. It is very important than you keep the spread in mind when you decide to invest in CFD:s. The CFD need to increase enough in value for you to cover the spread and for you to make a profit to be worth purchasing. If you buy CFD:s that only appreciate enough on value to cover the spread then you are only making money for the broker. You will not earn any profit for yourself.
Bull and bears CFDs
One of the benefits that CFDs offer you as a trader is that you can make money in bull and bear markets. You can buy CFDs that increase in value if the asset it is based on go up in value, but you can also buy bear CFDs that increase in value if the underlying asset decrease in value. This allows you as a CFD trader to benefit from any market movements. A stock market crash that can be devastating for other traders can be a huge opportunity to make large profits if you are a CFD trader as any strong trend allow you to take large positions and earn a lot of money.
CFD certificates is a very high risk financial instrument that can cause you theoretically unlimited loses. The high risk nature of the instrument means that it is very important that you do what you can to manage and minimize this risk. This includes limiting how much money you invest in any single position and never leaving your positions unsupervised. Another important way that you can manage risk while trading with CFD certificates is by using the tools the broker provide you with. Make sure to always use the brokers tools that allows you to automatically close you position at a certain point to make sure that you never lose more then a certain amount on any trade. It can also be good to use a sliding stop loss that closes your position when the asset decreases a certain amount from its top valuation. This allows you to save your profit and make sure that you do not lose your gains.
Knowing how to use tools to automate parts of the trading is key to success as robots can act on changing market conditions a lot faster then you can.