How to make money by CFD trading
|If you believe that the price of certain asset will go up or down and want to obtain a return (profit) from it, and you don’t want to risk a lot of money but want to invest like you have a lot of money, then CFD (Contract for Difference) trading allows you to get in the market easy and fast.
In ForexSQ we recommend you to open an account in a CFD broker and deposit funds. The deposit requirement for every position in CFD trading is only a fraction of the traditional trade (where the trader owns the assets) so with the same capital you can have a much larger portfolio. Leverage is what allows you to hold positions larger than what your capital would allow.
The world of CFD trading includes forex, shares, indices, bonds and commodities. When you open, for example, a long position, you don’t actually own that asset but your return will increase if the price of the underlying asset goes up and your capital will decrease if the price falls. If you consider that the price of gold will fall, you can profit by going short on gold, you just have to decide on the amount of the contract, which should have relation with the capital you invest, how much you want to gain and how much you are willing to lose.
If you think the euro will fall against the US dollar and you want to profit from it, you can go to an exchange house, sell euros and buy US dollars, say for example €100. If the euro actually falls 1% against the US dollar and you rebuy euros, you will have earned €1. If instead of selling the euros physically, you do the same operation using a CFD broker, with a deposit of €100 your gains could have increased, for example, from €1 to €100 (minus a minor commission); and all the process could have been done from a cell phone, a tablet or a computer from anywhere in the world.
Multiple assets, leverage, 24-hour trading and the possibility of going long and short, open up gigantic opportunities but also relevant risks. As a trader is important to consider the capital risk you take when you trade. You can double or triple your initial investments but as you don’t own the asset, you can lose most of your money.
Many brokers offer CFD trading through different platforms and they also allow you to test them with demo accounts before opening a real account. It is important to test everything before involving real money: financial instruments, software, trading systems, etc. The difference between real and demo accounts are usually slight; sometimes spreads (difference in a specific contract between ask and bid price) can vary. Having positive results on a demo account is probably the first step to complete before going real in the CFD trading world.
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