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What is CFD? All information related to CFDs

CFDs are a relatively popular type of financial instrument among investors. CFD trading will help investors optimize costs and minimize risks compared to traditional trading methods. So specifically, What is CFD? What are the advantages and disadvantages of this form of trading? Join Learn Forex Trading to learn about CFDs through the article!

What is CFD?

CFD stands for Contracts for Difference. CFD can be understood as an agreement between the seller and the buyer. This contract is executed based on the difference in stock/asset prices at the time of opening and closing the order.

Therefore, CFD traders can profit from stock/asset price movements without owning the asset itself.

See more: Forex is a great way to financial “billionaire”

CFD markets you can participate in

CFD Commodities: coffee, rubber, rice, cotton,…
Stock indices: Typically UK100, US100, SP500m, AUS200,…
Stock CFDs: Typically stocks of large companies such as Amazon, Facebook, Apple, Google, JPMorgan, Alibaba, Microsoft
Cryptocurrency CFDs: Typically Bitcoin, Ethereum, Litecoin, Ripple,…

Trading What is CFD? Forms of CFD trading

Once you know What is CFD, you need to learn about What is CFD trading. What are the popular forms of CFD trading? From there, choose the form of CFD trading that suits your style.

What is CFD trading?

CFD trading or CFD Trading is the exchange of contracts for difference. Once you clearly understand What is CFD, you will surely understand that CFD trading does not require owning that asset or stock.

When the CFD transaction ends, the seller will pay the buyer the difference according to the contract price. Conversely, in case of loss, the buyer will pay the seller the difference. You need to clearly understand What is CFD as well as standard CFD trading methods, from which you can build your own strategy. You will be surprised because CFD trading brings greater benefits than regular trading.

Types of trading What is CFD?

Each investor participating in the CFD market will have their own investment strategy. So specifically, What is CFD investment strategy and what types are it?

Day trading: This is a form of day trading, traders will open and close orders on the same day. Typically, positions are held for only a few hours. The main basis for trading is the changing trend of the market. This form helps eliminate the risk of loss when holding a position through the next day.
Swing trading: With this form, investors will exploit short-term fluctuations of assets to benefit. Order completion time ranges from 1 day to 1 week. The risk of this type of trading will be higher than intraday trading because holding a position until the next day may be affected by unexpected events.
Scalping trading: This is also a form of scalping investment but at a faster speed than Swing. The time to hold a position is only a few seconds to a few minutes. Although the profit per transaction is quite small, it is steady, according to the principle of small accumulation.
Long-term trading: This is a CFD trading strategy that lasts longer than 1 week. Investors will use fundamental or technical analysis tools, along with important market information.

Learn about the pros and cons of CFD trading

So specifically, the advantages and disadvantages of trading What is CFD? Should you invest in the CFD market or not? You can consider the following points.

Advantages of trading What is CFD?

No need to own the underlying asset: You simply spend money to trade and make profits. That means you don’t need to buy assets and wait for price increases. Therefore, you do not need to worry about keeping assets or the risk of loss or theft. Especially with some valuable goods such as gold, diamonds,…
Save costs: Not owning property helps you reduce transaction taxes. Besides, the trading scale of CFD contracts is also much higher than traditional trading.
Make profits both ways: Traditional trading investors can only make profits by buying low and selling high. CFD trading helps traders make profits whether the market goes up or down. As long as the CFD product price is as predicted or expected.
Low costs, flexible leverage: Investors can trade CFDs with high leverage up to 1:500, or even higher. Additionally, trading CFDs through an online broker is cheaper than buying stocks from a brokerage service company. Traditional trading is also taxed by many countries, but CFD is not, only the interest rate to maintain the order is lost.
Trade many assets, many markets: Traders can participate in many financial markets on online CFD trading software. With just 1 account, you can access more than 17 thousand products in the global market.

Disadvantages of trading What is CFD?

Spread fees when placing and closing orders: This causes obstacles when wanting to make small profits. Whether it’s a profit or a loss, you still have to pay this fee.
Risk of high leverage ratio: Investors need to monitor and react quickly to market fluctuations. In particular, careful risk management is needed. If your capital is too little and your leverage is too high, even small fluctuations in price will cause you to lose everything.

The secret to success when trading What is CFD?

Discover the secret to success when trading CFDs

Order placement operations when trading CFDs are not too difficult. Just do it a few times and you’ll get the hang of it. However, to be successful with CFDs, you need to practice a lot on a demo account, and learn a lot of experience from your predecessors.

Use MACD line and Nasdaq index in CFD stock investment

What is the MACD line? MACD is a technical indicator used by most traders to analyze stocks, and fluctuations and find trading signals. MACD can accurately forecast long-term market trends. The most effective is in the weekly time frame. Absolutely do not trade against the trend.

The Nasdaq index plays an important role in the stock market. So What is the Nasdaq index? This is a reference index that helps investors evaluate whether technology companies are operating effectively. In addition, this index is also used in measuring the strength of the US stock market.

See more: How to register ICMarkets broker account

Choose the right CFD market and position

What is the CFD market, which is stock indices, stocks, commodities, cryptocurrencies,… Choosing the right type of CFD is extremely important. Specifically, which CFD market are you interested in, as well as which market is the most exciting and potential? At the same time, you need to predict the trend to choose the appropriate position. Specifically, if you think the price will increase, you open a “buy” position. On the contrary, if you think the price will decrease, you should open a “sell” position.

Choose a trading platform

The most popular CFD trading platforms are MT4 and MT5. With Metatrader, you are provided with more than 50 types of indicators and charting tools. Or you can trade flexibly on the mobile application, monitoring the market anywhere, anytime.

Conclude

Above is all the knowledge to help you best answer What is CFD as well as CFD trading. Learn Forex Trading hopes that through this article, you will clearly understand the nature of CFD as well as the outstanding advantages of this market. Wishing you success with CFD trading!

FAQ

What is CFD?

Simply put, CFD is an agreement between the seller and the buyer to exchange the difference between the price at the opening of the position and the price at the close of the position.

Can you trade CFDs without using leverage?

Okay. Leverage will help you buy goods that cost more than the capital you spend, thereby making higher profits. However, it is not required if you choose the low-profit, low-risk option.