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Learn The Strategy Terms in CFD Trading

12 February, 2016

In CFD trading, the two most important terms that you need to know are Long and Short. Here, Long means that if you expect the prices of an asset to go up, you buy it. On the other hand, Short means that when you expect prices to drop, you sell it.

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A CFD can be used to support an asset that you expect to experience a drop in price. This means that you can still make a profit even when the price of an asset continues to drop. The secret here is to know the direction of the price and to make a call on it.  So whether the price goes up or down, profit can be made as long as the investor makes the right call. However, it goes without saying that losses can be incurred if the price goes the other way.

CFD Trading and Money Matters

Short sell trading is one specific way where you can actually make up for losses in some of your investments. This simply means that you can perform a short sell of the same amount of your investment through CFD trading to make up for your losses. Hedging means to look into your investment portfolio and execute a short sell if you anticipate losses to be incurred.

 Leverage

A leverage is the skill of an investor to manage cash funds greater than the deposit you entered. This can possibly increase the possibility of a higher investment return. Cash funds can be loaned from the broker you are tied with. CFD trading can be practiced on leverage.

If you decide to trade with a leverage of just 5%, this simply means that you can operate on a trade worth 20,000 pounds on an investment of just 1,000 pounds. This allows you a lot more money to manage which you can invest in other trades.

However, this manner of trading should be done with much care because this could also mean massive losses if you make the wrong moves.

 

Low Trade Costs

Low cost in trading is certainly one of the biggest advantages that an investor can enjoy in trading CFD’s. Compared to the costs involved in traditional trading, the difference is so big. Aside from using Leverage in trading, the advantage of being able to put up an amount as an initial investment for a CFD account is a lot smaller.

To discuss this further, there no set least capital requirement to start an account. A big thing that this offers an investor is that he can operate and trade with a capital that he can put, whatever that amount is. You can start trading with this amount. This is the perfect way to practice and see if your planned strategies will work by investing a minimal amount of cash. Another good thing is that the deposit you put up is well protected by the FSCS to an amount of 50,000 pounds.

When it comes to commissions given, in CFD trading are much lower than those figures involved in regular stock trading.

 

Dividends

Any dividend will automatically be deposited to your account by the online broker after they declare the issuance. If successfully went long on a trade, a dividend will be issued by the online broker to your account.  On the other hand, if you go short on a trade, the broker will hold the amount involved against your account.

 


 
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