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CFDs are increasingly gaining popularity. This is because of the endless opportunities for both making a profit and diversification that these financial instruments offer. For beginners, they also make a great starting point for their financial investment journey by virtue of their simplicity.
If you want to get your financial feet wet, CFDs make a great deal for making a profit. The following are the simple steps that you should take for you to get a positive return on a CFD trade.
Understanding CFD trading
The first step is to understand what exactly a CFD is. It is essentially an investment opportunity that is offered by a broker in which you bet on the price of a particular asset. You can bet that it will increase, and if it does, you will earn the difference between the price at which you entered, and the eventual higher price. That is your profit.It is important to note that when trading CFDs, you are not actually getting into a contract for the underlying asset that you are betting on. And the assets that you can bet on include spot metals, commodities, forex and most financial instruments that are traded in the market.
The other thing that you should note is that since you are not actually trading in the underlying asset, the contract is essentially between you and your broker. You bet on the price movement of a particular asset, and if things go your way, you get paid the difference, in price, by your broker.
Choosing your instrument
The next step in the journey towards making a profit with CFDs is to choose which instruments you are going to speculate on. The financial instruments that are are available to traders usually vary depending on the broker. Generally, with most reputable brokers, you will have the opportunity to choose underlying assets that range from commodities, indexes, share prices, and so on.The key to getting it right is to choose a financial instrument that you either understand or are willing to spend time understanding and learning about. Going through the trading costs that your broker imposes and any leverage terms that they provide should also be factored in when deciding which instrument to choose.
Decide on your position
Having chosen a financial instrument that you have a respectable knowledge of or one that you have confidence that you can predict its price movement, you should then take a position. If you believe that the price of the asset in question will increase, then you simply open a long position on the asset. However, if you believe that the market price of the asset will fall, you can short it.With your bet made, choose its size. You should decide on this number based on the size of capital you have at your disposal, and also on what your trading strategy allows.
Choose the platform on which to trade
In order to execute your trades, you will need a stable and feature-rich platform. A good platform should be able to allow you to execute trades at a faster rate, minimize risk, analyze the market, and maximize your earning potential. Therefore, settling on a good trading platform, like MT4 (MetaTrader 4) will play an important role in your ability to not only trade efficiently but also make the right calls.With the best platforms, you should have the ability to trade on multiple platforms without any trouble, get access to opportunities in multiple markets, get a wide variety of useful charts and technical indicators, and keep track of your positions in real time. And once you have settled on the platform to use, the next step is to take your positions and thereafter exit once the market eventually moves in your direction.
As a beginner, you should think about using CFDs as part of your investment strategy because of two main reasons. The first is that they are simple to understand and trade. The second reason is the fact that even with a small capital outlay, you can make a lot of money since you are only required to deposit a fraction of the total value of underlying assets.
