What are CFDs and why are they so profitable?

CFD trading

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CFDs or “contracts for difference” are assets that allow an investor to make a profit when the value of the asset increases. The biggest advantage of CFDs over traditional asset trading is that most can be acquired at a leveraged price, meaning that a relatively small investment will allow you to maximize profits.  Unlike of traditional stocks, CFDs can be purchased with as little as 5% of the actual price.

How did they become so popular?

CFDs first became available in the 1990’s in the UK and soon spread to a global market.  Today, CFDs are usually traded with the help of CFD providers, some of which provide basic stock market training, allowing everyday individuals to glean the necessary understanding of money-making strategies.

While it’s true that you can lose out on CFDs if you have no trading experience and dive into real-money trading without doing any preliminary research, there are proven methods for making money. It takes a lot of hard work and perhaps even more trial and error, but if you’re willing to invest the time and energy, you will reap the rewards.

Winning on Both “Short” and “Long” Positions

You can enter CFDs at either “short” or “long” positions, meaning that you’ll be making money if the asset decreases and you’ve entered “short” and if you’ve stipulated that it will increase in value and entered a “long” position. The market is in constant flux depending on factors such as geopolitical events and market trends. This means that as long as you’re able to predict the market with a fair amount of accuracy, you can make money from the comfort of your living room – or a Jacuzzi in the Caribbean.

How Can Stop-Losses and Sell Limits Help You Make Money?

The most helpful tools for increasing profit and making sure you don’t lose too much are the “stop-loss” and “sell limit” (and sell limits are usually the more helpful of the two). Sell limit ensures that once your asset goes up a certain amount, you automatically sell it. This way, there’s no need to monitor the market. You get out as soon as you’ve made a big enough profit.

Concurrently, if your position plunges, it will be automatically sold off as soon as it hits a certain low, and you will not incur further losses.

What Separates the Winners from the Losers?

The biggest factors that separate those who make money trading CFDs and those who lose out are: discipline, ability to maximize winnings and cut losses using precise timing, going with logic over emotion, market analysis, and diversifying your trading portfolio.

What’s the Difference Between CFDs Trading and Forex?

Forex trading and CFDs trading are very similar in that both allow the investor to maximize gains by acquiring assets at leveraged prices. They’re also extremely fluid.

The essential difference is that while Forex trading entails only currency trading, CFDs includes much more diversified contracts including indices, precious metals, and energy.