5 Things To Keep in Mind While Trading CFDs

CFDs vary immensely from the other genre of trades. They are initially easy to enter but they are leveraged products. Meaning, getting the speculation off-point will lead to colossal losses. CFDs have one of the lowest initial investment rates, but this is compensated by the difficulty that follows a trade. Contracts for Difference leans more towards the speculation aspect than the technical aspect. 

If you are new to the genre, here are 5 things to remember while trading CFD:         

CFD - Things To Remember Before Investing
CFD - Things To Remember Before Investing

1)  What does CFD Mean? Contracts for Differences, these are tradable assets that allow you to speculate the movement of a particular financial commodity without actually owning it. The commodity can be stock, cryptocurrency, index, etc. A profit in CFD is obtained when your speculation for a commodity matches the outcome. What makes CFD a unique branch of trading is that you can make profits even when an asset's value is going downwards? This allows more room for profits, and subsequently losses as well. 

2) Margins and Leverages: Online trading needs an initial investment, to begin with. A margin amount is an initial amount you deposit which allows you to invest in a trade.  This amount varies from broker to broker. The only constant factor being - it is relative to your stop-loss amount. The margin requirement will be based depending on the money you're willing to lose in your stop-loss.

Leverage is a sum borrowed or given by your forex broker. Some trades involve humongous amounts of cash; this can be availed from your broker. Leverage facilitates trades for you by letting you participate in expensive trades. However keep in mind, if you are careless and incur a loss, you lose your money and you have to pay the leverage back. 

3) Buying Long and Selling Short: CFD is all about speculation. To profit in CFD trading, you need just speculate the commodity's price accurately. When you see a rising trend, buy long - this will result in you profiting from each move. Similarly when there's a downward trend, sell short. The fast-paced nature of CFDs however makes it a challenge to hold the same position for a long duration. 

4) Keep Your Spread in Your Head: CFD brokers' main source of income is the spread they charge you. While participating in CFD, it is crucial to keep the spread rates in mind. Your broker might showcase attractive trades that are more beneficial for him and you might end up losing more than you invested. 

5) Trade Closure: A key aspect to note when trading CFDs is that your account must have funds at all times. Your broker has the complete control over your account, should the said balance fall below the margin amount, he can close it. 

CFDs are easier to setup and get into, however once in the field, tread with caution! The overnight funding costs and high market volatility might throw you off track. Get yourself the best CFD broker to partner with - get yourself WesternFX. Equipped with our stellar platform and strategies, conquering CFD trading in Vietnam will be a cake-walk! Call us today to know more.

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