The Meaning of CFD Trading For Beginners
CFD Trading means trading contracts for difference, for example when you buy shares from a stock company, you become a legal part owner of the company’s assets and profits.
It’s different with CFD trading because you don’t get to own physical assets of a company, you actually buy the difference between the price at which you enter your trades at and the price you exit at.
Investors are asking google search bar, “what is CFD?”, “is CFD trading safe?”, “how does CFD trading work?”, “can you make money from CFD trading?”.
There’s never straight answers for such direct questions, bare in mind that answers provided by websites are written by people like yourself, the only difference is education levels.
The limitation is that people have different views and opinions almost on any topic, my advice is for you to learn as much as you can then formulate your own opinion about what CFDs are to you.
My goal for publishing this article is to share with you every bit of information I’ve learned on my researching experience about CFDs, perhaps answer most of the questions asked by investors on a daily basis.
- What is CFD?
- Is CFD trading safe?
- How Does CFD Trading work?
- Top Three CFD Brokers
Let’s get to the first issue, What is CFD Trading?
This deserves a text book explanation, luckily for us there’s Wikipedia! The current definition states that “In finance, a contract for difference(CFD) is a contract between two parties, typically described as buyer and seller”(wikipedia).
For a sellers point of view its the difference between the current value of an assets and its value at contract time. That means if the difference is negative the seller pays to the buyer.
CFDs became popular in early 1990s when UBS bankers Brian Keelan and Jon Wood got into a trafalgar house deal, in early 2000s brokers such CMC markets began offering CFD trading through their online platforms.
Take a look at the video below created by market watch, it has the best explanation ever and has been viewed by over 130k investors worldwide.
Is CFD Trading Safe?
The answer can be both a yes and a big fat NO, depending on who you are and where you stand financially. All brokers who provide a platform for trading CFDs are required to display a disclosure warning that states “Trading CFDs is risky and might not be suitable for every investor”.
Risks include general market fluctuation and unforeseen evens like the market crash that happened in 2008. Other existing risks include the level of experience per investor and trustworthiness of a broker they use.
If you have just heard about CFDs then your answer is “NO”, CFD trading is not safe for you, but if you are experienced on other markets such as currencies, then you stand a chance to make a killing on CFDs.
The truth should by no means discourage you though, there are many investors around the globe who are very successful, they used websites like Saros FX for information.
How Does CFD Trading Work?
These days it’s very easy to participate in CFDs, the first step is to sign up with a broker that provides a trading platform.
The second step is verifying your account for complying with industry regulations that prohibits brokers from using fake accounts to make it seem like they have a huge client base.
For verification you need a scanned copy of your identity document and a scanned copy of your proof of residence, similarly when you open a day to day savings bank account.
Having both of these documents at hand guarantees you a verified account within 24 hours when you sign up with a good broker.
The third step is to establish funds for your account to activate it, also know as investing capital. The safest way to execute deposit and withdrawal transactions is by wire transfer, but there are also other safe online payment systems such as PayPal, Skrill, and Neteller.
Therefore when it comes to taking money in and out of a reputable broker, it’s a very safe process. What you do with your money once it reaches your brokers account is a completely different story, ask your self;
Will you use time tested trading robots that generates proven positive returns or will you do everything manually?
Will you apply signals from shady inconsistent providers or will you make the effort of researching the best signal provider that will generate you profits guaranteed?
If you do everything manually, have you trained yourself enough to capture profitable trades while limiting loses and bad entries?
Brokers have no control regarding the way you decide to invest, but rest assured that however you decide to invest will determine whether you’re the one who goes out of the market with a profit or lose. Now let’s get to;
The top five CFD Brokers
|CFD Broker||Platform(s) Offered||More information|
|Avatrade||MT4, Avatrade go, MT5||Review|
|CMTrading||MT4, web platform||Review|
|Fibo Group||MT4, MT5, cTrader||Review|
|Vantage FX||MT4, MT5||SIGN UP|
The financial CFD industry is sort of a chain, retail traders pay brokers via spreads and commissions, brokers pay software companies and liquidity providers.
They also pay for staffing and other business running costs, so relax you won’t be the only one paying, everybody does.
We covered what CFD trading is, whether it is safe or unsafe and the top brokers where you can begin your successful CFD trading journey at, most of the time I have no idea what topic to publish, it would help if you leave some comments and questions.
Here at Saros FX we also have other topics that might be valuable for your attention found on this page category.