Contract for difference is a growing trend which is taking the forex market by storm. Being already based on speculations and predictions, CFDs are taking currency investments to a whole new level. As per statistics, 34% of investors around the globe are opting for CFD trading as their staple source of income form this market. So, it is imperative to take a look at the CFD trader definition and its basic modus operandi.
What is CFD trading?
In a nutshell, CFD or Contract for Difference corresponds to the difference in the price of a commodity during the time of making the contract and its current price. This difference is the profit or loss of the trader.
Now, coming down to currency trading, CFD portrays the fluctuations in currency prices existing between live prices and the speculated ones. Most investors today are shifting their volumes from stocks and mutual funds into forex because of the high and fast returns.
However, CFD trading does not only suffice to making predictions and earning returns. It encompasses a multitude of factors which assist in making optimum investments. These include,
Efficacies of the currency platform
A trading platform is a software which assist investors in executing their trade. It projects a combination of charts and indicators that help traders make proper speculations. A currency trading platform play the following roles,
It analyses historical data portraying future market trends.
Trading platforms help investors gain profitable openings.
Investors can opt for absentee trading.
They provide demo accounts.
Opt for reliable trading platforms such as MetaTrader or Bloomberg as they operate following every intricate rule of CFD trader definition.
Note: Demo accounts allow traders try out their strategies and speculations so as confirm their approach and avoid losing a single penny from their pocket.
Often newbie investors tend to incline towards brokers offering them significantly high leverages. This can be a drastic measure considering the exponential losses one may have to incur. This is why experts of the market opine on choosing dealers with significant experience in the field.
A prime way to do so is checking out online reviews of the brokers you have shortlisted. These reviews provide a clear indication of a broker’s performance, his leveraging ratios and welcome bonuses on offer.
Opt for leverage ratios ranging between 50:1 and 100:1. Anything more than that can incur significant losses and even make your go broke.
An important decision is to decide between short term and long term speculations. While short term CFDs are safer with minimal profits, long term ones are riskier with higher profit margins. Welcome bonuses also have a major role to play which aid in escalating the profit volume as well.
The above points are a clear representation of the constituents falling within a proper CFD trader definition. So, if you are thinking about speculating contracts on your favourite currency pair, then do not forget to contact a reliable broker such as LiteForex.
Hurry up! The currency world awaits your presence!
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.