Sunday, November 28

Path to Becoming a CFD Trader

Having a career in CFD trading is lucrative once you put in the time and effort to learn the ins and outs of the industry. Come with me as I show you a blueprint on how to start out as a rookie CFD trader. Below are 5 steps that you can take to become a bonafide CFD trader.

Ascertain how CFDs Work

Copying the underlying market is how CFDs work. When the underlying market’s price goes down, you can open a CFD position that can profit. You may also copy the workings of a forex market trade that profits when the price in the market increases.

For instance, in a theoretical world where you purchase 5 FTSE 100 contracts. The buy price is 7500. $10 per point is how much a FTSE 100 contract is worth. You make $50 for each upward movement the point moves and lose $50 for each downward movement the point moves.

As a general rule, The full 7500 position is what the possible profits and losses will be based on, not the margin amount. This is magnified.

$250 would be your profit if you sell FTSE 100 when trading at 7505

                                    $250 = (5×10) x (7505  – 7500)

$150 would be your loss if you sell the FTSE 100 when trading at 7497

                                    -$150 = (5×10) x (7497 – 7500)

Bear in mind that costs and charges are excluded in the profits that you gain. Overnight funding charges, commission, or guaranteed stop fees are examples of these costs and charges that may incur.

The workings of CFD Profit and Loss

Here are the steps to follow to calculate the profit or loss incurred from a CFD trade: Multiply the value of each contract by the deal size of your position (the total number of contracts). Afterwards, multiply the answer of the previous calculation  with the difference in points between the price when you closed the trade vs when you opened it.

CFD Trade Know-how

You are prepared to place a deal when a consensus in your mind has taken place on which market you want to trade in. Sell if you think the asset you’re trading will decrease. Buy the asset if you think it will increase.

CFD Timeframes

You may choose to trade with CFD futures or the spot market with CFDs on hand. This will depend on the market that you are positioning on.

CFD futures, that are also known as forwards, are well suited for medium to long-term CFD trading. The CFD trader is able to speculate on the price of the asset on a specified date, something that futures can afford you.

Spot trading, that is also known as cash trading, is well suited for short-term trading as the immediate real-time price of the asset is the spot price.

Ascertain the Costs when Trading CFDs

The cost to open a CFD position is covered in the spread most of the time. This means that buy and sell prices will be moved to adjust the cost of placing the trade.

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