Of all trading arenas currently existing in the global markets, Forex or currency trading stands as the most profitable one. Owing to minuscule price fluctuations at every instance, newbies, as well as veteran traders, strive to maximize their profit with every trade. Moreover, this investment market offers a number of strategies which allows traders to go long or short according to their needs including long-term, short-term investments as well as CFD trading. Among these, CFD trading is gaining importance due to its versatility and experts opine to try out a CFD trader demo before setting foot in this FX arena.
What is CFD trading in Forex?
A contract for Difference or CFD operates on speculations offered by traders on rapidly fluctuating commodities such as indices, shares, currencies, commodities or treasuries. Investments depend on the rise or fall of these commodities and profit comes from the final difference in buying and selling prices.
Considering Forex, the biggest perk of trading CFD in currencies is its marginal investment nature. In other words, a person can risk a margin of his total investment which in turn receives leverage from the broker’s end. This leveraged amount is then invested in a currency pair specifying its short position. On closing a trade, one may account for handsome profits or significant losses considering “leverage”.
A demonstrative example
Suppose, trader A opens a CFD trade on USD/GBP for $500 and leverages the same in the ratio of 100:1. So, his final investment volume stands at $50,000. Post position closure, the trader receives a profit margin of $10,000.
Therefore, his final profit will be $2,000. However, to gain such profit, one needs to have an expertise, and this is where the requirement of a CFD trader demo kicks in.
Why and how to demo trade using CFD?
Every reliable currency trading platform such as MetaTrader or Bloomberg offers demo trading platforms. This helps investors to get the hang of this market. Traders can test their strategies on these platforms, thereby preventing unnecessary losses. Take a look at how demo trading helps,
- Buy & sell position accuracy:
Since CFD deals with speculations on the rise and fall of a currency pair, therefore, a demo account helps traders escalate the accuracy of their speculations. By studying live price action and market trends, investors are able to forecast bearish or bullish markets better. Thus, leveraging positions become even more profitable.
- Prevention of asset loss:
Often trading without experience receives the fate of substantial losses in the Forex market. By using a CFD trader demo, unworthy investments and false decisions will not affect live assets. This is because demo investments are made using virtual money.
- Strategical modifications:
Often, one currency pair may not bring positive results due to lack of strategic accuracy. Such situations call for a switch in currency pairs and trying out new-fangled approaches. A demo account can be of much help to investors, especially newbies to find out their jackpot pair.
So, having mentioned the above, you as a currency trader must not delay in setting up your CFD trader demo. However, make sure to sign up with a reliable broker such a LiteForex for instance and give your currency investments a head start.
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.