Trading for beginners: Essential things you need to know about CFD trading!

CFD trading is one of the most popular and complex trades today, in this exchange you speculate on an asset’s future value to profit. And since CFD stands for Contract of Difference, you’d understand why you only own a fraction of a particular asset and not its physical form. 

Popular examples of this trade are stocks, bonds, shares and indices but in CFD trading, you can trade with literally anything in the market may it be precious metals, base metals, commodities, forex, digital currencies and more!

So if you’re planning on becoming a CFD trader, you need the ‘GOODS’ to back you up to successfully take on the volatile nature of CFD trading. To help you out, here are some ‘essentials things’ every starting trader should know:

Are CFDs good for beginners?

CFD trading, although deemed to be pretty complex, it still attracts newbies because of its access to leverage. High leverage means you can make big money with small capital, essentially why this is great for beginners.

But then again, you also need to remember that high leverage can help you profit big but also lose big. Since the average CFD leverage is 1:50, your $1 can become a whopping $50, but your $50 can also become a $1. One of the reasons why this trade is labelled as complex.

Is CFD trading better than investing?

The answer to this relies on your financial goals and trading techniques. CFD trading is a fast pace kind of trading, or in other words, it’s a short-termed trade. Whereas investing is long-term.

So if you want a quick trade with a flexible profit, go for CFD trading, but if you want something long-term that you think will increase value in the future, go and invest!

Which trading platform is best for CFD?

There are various kinds of trading platforms you can choose from today but there are only a few that are deemed to be reliable and effective. Down below is a list along with what they’re known for:

  • eToro – This trading platform is known for its superior accessibility to various kinds of trades.
  • Interactives Brokers – Offer great research tools and are highly efficient as a whole.
  • Forex.com – This platform offers low fees!
  • XTB – This trading app offers quality trading tools and complex features that experienced traders will surely enjoy.
  • IG – Is user-friendly and offers advanced trading tools!

What is the process of CFD trading analysis?

Since this trade is big on speculating an asset’s future market value, it’s essential you know how to analyze. There are three stages, such as pre-processing, processing and post-processing. To understand how these stages work, here’s a breakdown of each one:

Pre-processing

In this stage, this is where you define the parameters of the trade in an accurate way. There are 3 elements needed in this process to prevent errors in your speculation: (1) Gaps in the model, (2) Missing or overlapping fees and (3) Unclosed geometries such as vertices, free faces, and edges.

Processing

In this step, this is where you finally put your pre-processing plan to good use. 

Post-processing

After processing, now you need to analyze those results using contour plots, vector plots, data curves and streamlines. This is to ensure your techniques in pre-processing are functional and efficient. 

Popular ways to calculate and analyze your post-processing are by using software like ANSYS CFD-POST, ParaView, Tecplot 360, EnsSight and so on. Use these apps to:

  • Calculate the derived quantities
  • Calculate the parameters
  • Get visualization
  • Get systematic data analysis
  • Debug, verify and validate the CFD model

How much money do I need to start CFD trading?

As a beginner, it’s best to know the scope of capital you need to start, to prepare yourself. In CFD trading, no matter if it’s shares, stocks, indices, forex and so on, you usually need around $100 to $500.

But as a novice trader, that’s a lot of money to risk on your first-ever trade. A tip, you can use demo accounts to practice. These are available on most trading platforms. On these demo accounts, you can practice using trading tools, learn how to read charts and graphs and even know what it’ll be like to actually trade.

Take away

Now you know these great tips, put them to good use and try them out! CFD can be pretty volatile and complex but with the help of these ‘essential things’ you need to know as a starting trader, you’ll surely survive this market! So start your CFD trading journey today with these awesome tips!

Tom Hardy

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