CFD Trading | How to trade with CFD? Check out the complete guide

If you want to be a professional trader and don't know which market to start, we want to introduce you to CFD Trading.

This is one of the most accessible options for negotiate at a low cost. However, many people do not know what is CFD and how to start trading, we've made this comprehensive guide to help you.

Read until the end !!!

What is CFD trading?

CFD Trading stands for “Contracts For Difference”Or“ Contracts for Difference ”. The contracts are derived from a financial asset, so you do not need to buy the real asset to trade it, only the derivative asset (CFD).

There are unique characteristics of the CFD, you need to understand them all so as not to confuse them with the derivative asset. Look:

  1. The trader profits from the difference in the buy and sell prices, he always chooses whether to buy or sell for a certain price and expects the CFD to move in favor of his operation, so that he closes the order.
  2. CFDs are short-term investments, you cannot hold them as a stock. You can only buy and sell !!
  3. CFD contracts are more common in the international market, mainly in Europe, but you can find them on the stock exchange.
  4. CFD trading has leverage, this can maximize your profit, so the possibility of gains with CFD can be more attractive than buying a stock.
  5.  This is a financial instrument that can be complete, so the trader must specialize in CFD.

How to trade, or do CFD trading?

Step by step for you to open your account in less than 5 minutes at eToro.

First step: opening the account

Open an account with a reliable and popular broker, for example: IQ Option, XM, Etoro and Avatrade (all have good brokers to trade CFD).

We chose eToro, as it is the most traded by everyone. Enter the website and fill in the data correctly in the form or enter your google / facebook account.

 

Second step: verification

Verify your information with a photo of your identity.

Step 3: deposit

After verifying your account, eToro will communicate by email that you can deposit money and start trading. Go to "deposit", choose one of the desired options, choose the currency and the amount. After a few minutes the money will fall into your eToro account.

Step 4: start trading

After the money falls into your account you can start trading. In this image we have the eToro interface for you to observe how you negotiate CDFs.

crypto cfd trading

Analyze the trend based on the probability, always look at the original asset and trade !!

If you find that buying entries are more attractive, make a purchase and close the deal when you profit.

There are costs to operate the CDF you will only understand how to profit when you open an order. But, remember to look at the rates offered by the Broker beforehand, your operation must cover these operating costs.

The profit will always be: Difference between the buy and sell price of the broker - broker commission fee

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CDF trading MT4: how does it work?

XM, one of the most famous brokers for trading stock, oil, gold and index CFDs, provides synchronization on the MT4 and MT5 platform, the trader can choose an 888: 1 leverage and win bonuses of up to $ 5.000.

cfd futures trading

CFDs are products OTC - Over the Counter or over-the-counter market, you can trade at any time of the day, it will always be open. As this is an emerging financial product, operations are increasingly attractive.

It is interesting that you invest in Stock CFDs, but without buying them. Since CFDs are derived from stocks, you can benefit from either low or high. You don't have to hold and hold, you can sell when it depreciates.

Another feature is the forex cFD trading na XM the trader can use up to 888: 1 leverage. Enabling greater chances of profit.

CFD Day Trading: understand how it works

The market is open 24 hours for day trading, the CFD works on the OTC - Over The Counter market, so trades can trade at any time of the day. The big question is about the broker's margin and commissions on day trading.

In forex it is advantageous to trade OTC, after all there are 5 billion dollars traded daily, the market has the necessary liquidity for you to trade a lot or profit a lot.

The volatility of OTC is incredible, however be careful, as there are always financial risks, you cannot trade an asset you don't know, the best way to learn how to trading CFD is:

  • Studying
  • Dealing

Also understand the asset you are going to trade, opting for an illiquid stock is a risk, your position may devalue at any time. Choosing good stocks or index is critical.

Beware of Forex CFD trading volatility

Like any operation of the day trading in forex, you can consider volatility to be something pleasant. However, prices can plummet for no reason. Volatility can be favorable or unpleasant for this type of derivative in the market. But its success depends on good financial management and emotional control. It is not enough to analyze the forex market, to see opportunities if you do not know how to manage risky situations.

What is CFD futures trading?

CFDs can speculate prices on futures contracts, but it is important to note that although they negotiate the values ​​of futures contracts, CFDs are not those futures contracts !!

They do not have a settlement date, they are only traded as another security, where the trader buys from the broker. CFD futures trading is also part of the over-the-counter (OTC) market. That is why CFDs are not traded on the stock exchange, like the NYSE.

What is Bitcoin CFD trading?

They are CFDs - Contracts for Difference in bitcoin, but there are other popular cryptocurrencies:

  • Ethereum
  • XRP
  • Litecoin
  • Bitcoin Cash

One of the biggest benefits of buying CFDs is that the trader does not necessarily need to have cryptocurrencies in his portfolio, he just buys CFD contracts and profits from market fluctuations. This also happens for 24 hours.

Before buying the bitcoin or cryptocurrency CFD, evaluate if it is interesting. After all, the spread options available in this modality can consume your profit, this is a very competitive market. So, maybe it pays to trade on bitcoin itself !!

CFD buying and selling

In order to operate the CFD it is important that the person understands about the financial market and the derivative product he is trading. The most common market analysis situations are for: “Upward trend, downward trend and consolidation”.

The trader determines how to position himself in the purchase and sale of CDF, based on the analysis of the asset. Example:

When the trader buys the CFD for an X price, he must resell it for a higher X price, otherwise the operation will cause losses. For this to happen, the trader needs an upward trend, the asset needs to rise. But it is not enough to go up if the profit on the CFD does not cover the broker's commission fee. 

CFD types

There are a variety of CFDs, the most common of which are currency pairs, Forex, stocks, bonds, stock index, ETF and commodities. In the international market, CFDs are popular in the index, mainly the S&P 500.

Let's say that CFDs are more reliable, as CDF S&P 500 follows the same variation as the original index.

Examples: when CDF S&P 500 is in an upward trend, so is the S&P 500 index. One follows the other correctly, it is a stable derivative. 

Types of contracts

There are 2 types of CFD contracts, continuous and pre-defined. Continuous: have no defined maturity Predefined: have maturity, are applicable to forex, bonds and commodities.

Final considerations

This is a guide for you to understand the CDF trading, they are not very popular in Brazil. But when you specialize you can do hedge in your stock portfolio. This is extremely advantageous for those who buy shares.