Many investors are taking advantage of the CFDs as part of their portfolio due to its versatility. In CFDs, you can trade for the whole 24 hours of your day, access a lot of instruments, use leverage and even trade on falling markets.
Below is the list of steps in trading CFDs.
Choose Your Market
You have to decide which market you would like to trade on. You will be able to find thousands of offerings to individual markets like you which includes currencies, shares, indices, interest rates, commodities and bonds which gives you exposure to major markets worldwide like the US, UK, Europe, Australia, New Zealand, and Asia.
Decide to Buy or Sell
After choosing your preferred market, next thing you need to know is the price. You will be able to do this if you brought up a trading ticket on your trading platform.
The CFD markets consist of two prices. The first one is the sell price which is for the bid, and the second one is the buy price which is for the offer.
Deciding to buy means that you want to go long. This is done when a trader thinks that the price will increase its value at a later time. While, selling means that you are going short which is done if you think the price will drop.
Select the Size of your Trade
In trading CFDs, you can choose how many you would want to trade. In equity trades, one CFD is equal to a physical share.
In trading FX, indices, bonds, commodities and interest rates, a CFDs value relies on the instrument. You will know the number you are trading by viewing the tick value in the market information sheet of your instrument.
CFDs are leveraged products. This means that you just need a small portion of the overall value of the trade in your account, which is known as the margin, for you to be able to open the trade.
Commonly, the bigger your trade value, the bigger margin is required. It is vital that you have enough funds in your account for you to keep on trading. There is a margin calculator in your trading platforms which will compute your preliminary margin automatically.
Add Stop Loss
Before you can finally place your trade, be reminded that you really have considered your risk management technique. The key to it is to put an order like stop loss which will close the trade for you automatically once the market has reached a specific level.
Stop loss order is a command that lets the trading platform close your position when the market reaches a level you specifically set.
Limit orders are commands to close a trade at a specific price which is better than the existing level of market and used to help in locking in the target profits.
Monitor your Trade
After placing trades and stop loss or limits, CFD profit or loss will now alter based on the movement of the market value.
You can keep track of the market value from your PC or through an app on your tablet and smartphone.
