CFD for Beginners

Over the last 2 years, I have been trading somewhat actively on Contracts for Difference, or CFDs as they are more commonly known. If you’re not familiar with the term, or the product, this is a good place for you to get introduced to the concept of CFD trading for beginners.

What are CFDs?

CFDs are a form of derivative trading, which allows you to speculate on the rise and falling prices of many different financial instruments such as shares, commodities, currencies and indices. It is a leveraged product, which means you will be trading on margin. This means you’ll only need to have a small deposit in order to open a position.

This post will serve as an introduction to CFD for beginners. Note that when you trade CFDs, you don’t really own or hold the underlying asset, you’re really just buying or selling units based on your prediction of price movement.

I use CMC Markets as my CFD trading platform, and really like them for a whole bunch of reasons. They have a great UI, and provide really valuable training lessons for someone new who’s onboarding the platform. 

Here’s a quick primer on what CFD is all about, from CMC Markets. 

Benefits of CFD Trading

How can you benefit from trading Contracts for Difference?

• With CFDs, you can go both Long and Short on the price of the product. Many traders use this as a way of hedging against their long term portfolio when the markets turn down.
•  With margin and leverage, you can start trading with a small capital, and still stand to make substantive profit (of course losses may also exceed the deposit). For instance, with 10% margin, you can make a $10,000 trade with a $1,000 deposit.
• Access to a wide variety of investment products, including indices, stocks, currencies and even digital currencies. 

Cons of CFD Trading

• When trading with margins and leverage, you’ll need to watch out for margin calls, or you’ll risk getting closed out of your position if your losses exceed your account hold out level. 
• CFDs are more suited for day traders. When you hold a position overnight, you incur holding costs or fees. Although it is a small cost, it can roll over time and is something to factor into your trading strategy.
• Because you don’t hold the actual stock, there are no dividend payouts.

Why I chose CMC Markets

• They have a huge range of products with which you can trade. Although I mainly use it to trade stocks, I like having the options for when I start trading on other products. 
• They have a good risk management feature in the form of guaranteed stop loss, which helps in minimising losses. 
• Besides being a trading platform, they also help with educating traders not just on the technical usage of the platform, but also general education resources and news on the market.
• CMC Markets is authorised and regulated by the Monetary Authority of Singapore, ensuring all funds are protected.

Income Reports from CFD Trading

Starting January 2019, I will be updating on this site my income reports from CFD trading, as well as other sources on this site, and hopefully provide everyone with a view of how these various side hustles are turning out. 

If you think CFD trading may be for you, you can try it out with CMC’s demo account before opening a live account.