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How to Trade CFD?
What is CFD Trading? And how does CFDs work?
If you are looking for the best trading platform, forex broker or a stock trading app, then you have arrived at the right place. We pride ourselves on being one of the most informative CFD Trading guides available to UK and EU traders.
Trading used to be an activity that was exclusively available to stockbrokers on Wall Street but nowadays it's available from the comfort of your own home. It’s a phenomenon that’s spread over the world and that’s usually referred to as day trading. The idea of day trading is that you conduct several shorter investments during one day instead of placing longer investments.
At BullMarketz we aim to deliver comprehensive and objective reviews of financial investment platforms.
All investment platforms listed and recommended on our site are regulated by the FCA or/and CySEC. Our primary markets are UK and EU, but on this site, you will find information about trading globally as well.
We strongly recommend that you only use regulated and licensed brokers. The difference between a regulated broker and an unregulated broker is safe trading or being scammed.
If you are unsure if the broker is regulated you can always contact our support team.
Don't know where to start? Let us point you in the right direction.
First things first: Be aware of the risks associated with trading and leveraged trading. It is our recommendation that all our clients read and understand the risks associated with trading CFDs, Stocks, Cryptocurrencies, EFTs, Commodities, and any other assets.
Day trading is something we've been doing for a long time and that we’ve come to love. In our opinion, there is no better way to trade than day trading. It’s a lucrative way of benefiting from the market and an even better way of making money. Although, it does involve some risk if you’re not careful. Therefore, our goal with BullMarketz is to provide the BEST day trading guide on the Internet. We want to educate by example, keep our readers up to date with the latest news, but more importantly have fun while doing so.
In fact, having fun is the most important part because you can’t expect to succeed in these highly competitive markets unless you enjoy doing it. Day trading isn’t a regular job where you go to an office every day and have tasks that need to be completed. No, day trading needs to be a passion of yours, and it requires your full commitment. How else would you be able to sit down every day and remain focused for hours? You wouldn't be able to if you weren't passionate about day trading.
For most, passion is something that develops over time. Usually, when people start trading they’re driven by the excitement of investing every day and the possibility of making money. Eventually, that excitement will cool down and that is when your passion and appreciation for trading needs to kick in. You can't expect to make real progress and become successful before that happens.
The idea behind BullMarketz is to give you support from your very first day on the financial markets until trading becomes a routine for you. We can offer you all the basic information that you might need as a beginner.
And because of our experience trading with different types of instruments, we can also offer the tools needed for you to survive in the global markets. It doesn't matter what your level of experience is, we are here to help you.
But let’s jump into the important stuff. Below you’ll find detailed information about the different sections and topics that we cover on the website, as well as an explanation of what we can offer you as a trader.
Contracts for Difference
CFD, short for Contracts for Difference, is a contract between two parties who speculate on the price of an underlying asset. Compared to other traditional forms of investment opportunities, CFD trading has big winning chances but also great risks should you learn how to trade CFD.
When answering the question, What is CFD trading, it is important to know that CFD trading is always conducted through a broker where you are the buyer and the broker is the seller. Nothing is done in person and everything is always done online through a trading platform. It is as easy to understand as it sounds.
Not all brokers offer CFDs, but those who do usually offer CFDs on all the assets they normally offer. When trading CFD, it is important to look for the right broker especially one who sells stocks and currencies making CFD trading since you can buy the CFDs on the right currency and equity markets.
CFD trading was invented in the 1990s at UBS in London and began with the exclusion of HF. One of the reasons for CFD's emergence was that speculative investments were tax-free in London at the time.
To begin with, CFD trading was simply a way to earn tax-free money on the London Stock Exchange and to even out losses by speculating on your own investments. CFD has since continued to be a popular form of trade.
What is CFD Trading and how does it work?
CFDs are legally binding contracts between two parties and in this case between you and a broker. The contract stipulates that the seller (broker) must pay the buyer (you) the difference between the bid and ask price. Should the difference be negative, i.e. the price of the underlying asset has fallen, it is the buyer who pays the seller. It is important that you understand that should the price of the underlying asset to fall below your purchase price then you will owe the broker money. If the price rises instead, the broker is the one who owes you money and payment to your trading account is made. That is how CFD trading works.
CFD trading favors you. These contracts are time-based but usually not time-limited. That means you can choose when you want to sell a contract. Because you are in control, you can also wait for a downward trend turn in a bid to secure a win.
You can buy CFDs on all financial markets in the stocks with indices and currencies being the most common. As a rule, CFD trading tends to be used for long-term investment, taking advantage of upward price trends. There is also the option of buying CFDs for short and downward trends ("go short"), although it is much less common.
Day Trading and CFD Trading With Currencies and Currency Pairs On the Forex Market
One of our favorite types of investments is called currency trading. Recently this has also become one of the most popular forms of day trading. The foreign currency market, also called the forex market, is a decentralized market and the single most lucrative market in the world. Every day, currencies worth several billion dollars are sold globally. And if you’re dedicated enough to learn about the market you will have opportunities to make money from both longer investments as well as shorter trades. In other words, the forex market offers possibilities to trade on long-term price developments and short-term price changes. Your investments can stretch for a few minutes to several years, and everything in between.
Our best recommendation for forex trading is to only focus on a few currencies and not the whole market. As a day trader, you need to find a couple of currencies that you understand and then focus all your attention on them. For example, if you're from the US your main focus could be the USD and CAD, but if you live in England, GBP and EUR might be a better choice. We also recommend that you find a few smaller currencies to combine the major ones with such as SEK, TRY and THB.
After you’ve decided what currencies to trade with you need to analyze them until you have a better understanding of how they act together. Then you need to start looking for events that will affect the markets and create investment opportunities to benefit from.
If this is your first time opening an investment account we suggest that you try a demo account for trading first. This can help you get started in a risk-free environment. If this sounds interesting we suggest that you read our Markets.com review, they offer an excellent demo account.
Leverage And Margin
A unique factor of CFD trading is that all CFDs automatically come with so-called leverage. This means that as a bidder only pays a fraction of the underlying asset's actual price.
The interesting levers in CFD trading are a safety requirement.
There are big profit opportunities for those who know how to best utilize CFD trading. On the other hand, it also comes with more risk and you can get into a situation where you lose money you never had or can not afford to lose.
Because of this additional risk, several countries tried to put an end to CFD trading. As this is being written, CFDs are available and legal in most of Europe, but in many places like Asia, Africa, and Latin America, it is prohibited. CFDs are also not legal in the US, which is good to know. That it means is that you may not buy or sell CFD's in the United States even if you are only there on holiday.
Advantages And Disadvantages Of CFDs
As with all forms of investments, CFD trading has both advantages and disadvantages. In fact, no form of trading is risk-free or perfect so it's always up to you to decide if the advantages outweigh the disadvantages. But that said, the CFDs are an extremely popular form of trading and something you definitely should try. We generally recommend testing of nearly all types of day trading available, mainly to gain experience. Here are some benefits of trade form, just so you have an eye on what you're getting in to.
- You can buy CFDs in all markets and therefore do not limit to a market
- CFDs offer faster and greater chances of making a profit than other forms of trading, including equities and indices. Also, you do not invest equal amounts
- CFDs are usually free of charge and hold to their positions. In short, you will not have to pay interest
- It is relatively easy to learn trading CFDs. Having knowledge of a particular market can maximize their opportunities by combining their usual trading CFDs
Cons (and how to tackle them)
- The main disadvantage of CFD trading is the increased risk as leverage contributes. But do not let that scare you. If you make sure to educate yourself on the market and the tools you use, you can minimize the risk
- Not all brokers offer CFDs. If it happens that your broker does not offer them, you can open a trading account with another broker. There is certainly nothing wrong with having multiple accounts
- If you choose to hold positions for long periods, most brokers will charge interest on the amount you invested. In some cases, the interest rate can be as high as 3%
Everything You Need to Know About Stock Trading
Stocks are what most people associate with trading because in many ways stock trading is the traditional way of day trading.
Stock traders invest their money by buying shares (stocks) of a publicly quoted company. A publicly quoted company is not just any company but a company that's been registered on a stock exchange. When you buy a stock, you actually buy a part of the company, although you have minimal influence on how it is run. If the company does well your stock will gain value, and if the company does bad the stock will lose value.
The difference between the decentralized currency market, where all trades are done online, and the stock market is that a stock exchange is a physical place. Some of the most well-known stock markets are the London Exchange and the NASDAQ in New York.
Stocks can be traded in groups called an index. The Dow Jones and S&P 500 are two of the most well-known indices. An index represents the average price of the included stocks.
We love stock trading because it’s a versatile form of trading that’s perfectly suited for both long-term investments and day trading. Stocks are, in other words, something that most people can appreciate.
What is Contract for Difference (CFD)
CFD trading is different from both currency trading and stock trading because you don’t actually buy a stock. Instead, you speculate on the price of an underlying asset.
A CFD is a contract between you and a seller (in this case a broker) that represents the value of an underlying asset. The asset can be anything from a specific currency pair to a stock, a commodity, or any other financial instrument that you can invest in.
Your goal is to buy a contract with a prediction about what you think will happen to the price of the asset. Will the price increase or decrease?
The contract only includes the value of the asset and not the condition or time of sale. That means that you can hold on to a CFD until it makes a profit even if the market starts moving in the wrong direction. Because of this CFDs are mostly used for short to mid-term investments. We usually buy CFDs planning to sell them within a few hours or at the most a few days.
One of the many benefits of CFD trading is that you can invest in bearish markets, unlike stocks and currencies that can only bring profit if the market is bullish.
On top of that CFD trading is one of the few methods who allow you to buy stocks with PayPal.
Since Binary Option is forbidden, CFD trading is often seen as the best investment form for day traders today.
In the context of this website, commodity trading is somewhat of an alternative form of investment. However, in general, commodity trading is a traditional form of investment.
As the name proposes, this form of trading involves commodities. Your task is to buy a commodity that you think will increase in value and then sell it for profit. A commodity is an unprocessed product that is traded in its natural state. Gold, crude oil, coffee, and sugar are examples of popular commodities.
The price of commodities is known to fluctuate, making commodity trading best suited for day trading and not longer investments. It can be hard to predict what will happen to the price of crude oil over the coming year, but easier to figure out what will happen before tomorrow. The main issue with oil is that there are so many factors that can affect its value - ongoing wars in the areas where the oil is being extracted, new oil fields being found, political lobbying, climate laws, etc.
With that being said, commodities can also be used for long-term investments. However, we only recommend investing in commodities long-term if you actually have reason to believe you know what will happen on the market.
Cryptocurrencies, also known as digital currencies, are the latest hype in the online trading community. Many hardcore trades refuse to acknowledge cryptocurrencies as “real” investment opportunities, but in our opinion, they are some of the most interesting and lucrative opportunities available.
The main benefit of cryptocurrencies is their extreme market movements, both in the long and short run.
Let us explain using Bitcoin as an example.
Since Bitcoin was released in 2009, its value has increased by several thousand dollars. In 2009, you could buy 5 Bitcoin for less than $50 and today you could sell those same Bitcoins for more than $20,000. As you can see that was a great long-term investment opportunity. However, Bitcoin’s value has also increased by several hundred percents in 2017. On some days the price difference from when the market opens until it closes is several hundred dollars, and that my friends present extreme opportunities for day traders.
We can offer you all the information you need to start trading cryptocurrencies and hopefully become successful. Our goal is to provide you with personal advice as well as practical tips about the best brokers and the hottest digital currencies.
We can also help you if you’re interested in cryptocurrencies but are not quite sure of what they are.
The Best Day Trading Brokers
Regardless of the type of investment, you will need to use an online broker to gain access to the respective market. A broker acts as the middleman between you and the market. Brokers also offer tools and trading platforms where you can analyze the market and follow your investments.
Today, there are several hundred brokers to choose between and it can be a daunting experience trying to find the one that's best for your personal needs. Luckily, we have several years of experience in the industry in which we have gone through more brokers than we are comfortable admitting.
Some of the brokers that we’ve used over the years have stopped operating, some of them have merged, and a few have been our favorites from the start. The point we’re trying to make is that we have learned a lot about what’s required from a good broker and how to spot scam brokers that should be avoided.
To help you avoid the extensive work of testing and evaluating brokers we have decided to recommend the brokers that we think are the best ones on the market right now. To make it even easier we have created lists of the best brokers based on the different markets. We’ve also written detailed reviews about their services so that you know what you can expect from each one of them. Below you’ll find a summary of some of the top brokers for day trading.
- Markets.com is our absolute favorite and first-hand choice. They offer currency and CFD trading and have one of the best collection of cryptocurrencies on the market.
- Plus500 is another industry leading broker that offers CFDs on Indices, Forex, Commodities, Crypto, Shares, Options, and ETFs.
- eToro is a broker with a social trading network where you can interact with other traders, sharing tips and even copying other’s strategies.
- IQ Option is a great alternative for everyone looking to trade cryptocurrencies. They offer a CFD platform, a crypto exchange, and a crypto network.
- 24Option has an impressive selection of assets on all of the most prominent market. Trade stocks, commodities, cryptocurrencies, indices, and more.
- IG Markets is a smaller but very well established broker that we really enjoy trading with. Impressive educational material and trading opportunities.
The Latest Day Trading News
The single most important skill of any successful trader is the ability to analyze and evaluate the market. It’s a skill you can learn by studying hard and something you will have to dedicate a certain amount of time on. However, the most important part of any correct market evaluation is to stay updated on current world events and news. If you’re not aware of what’s happened as well as what's going on right now, you won’t be able to predict what will happen in the future.
To help you with this, we offer the latest news and updates right here on BullMarketz.com. We share well-written, relevant, and detailed news articles that you can base your investments and strategies on.
All the news will be published on the website but can also be delivered right to your inbox through our newsletter.
We have also decided to offer something we call the crypto-puls. It is a weekly update of the latest in the cryptocurrency world. We will answer questions like, what are the current prices? What can we expect from the coming week? And so on. Our crypto-puls is a practical tool for everyone who is interested in digital currencies and something that we wished we had had access to several years ago when we first started trading cryptocurrencies.
A Few Final Words
The above is a short summary of what we want to offer our readers. Our main goal as we mentioned is to educate traders on all levels - from absolute beginners to more experienced traders like ourselves.
By offering you the latest and most relevant information, we hope to provide you with the best possible conditions to place profitable investments in all markets. It doesn't matter if you want to focus on long-term investments and savings or pure day trading. How else can you find out which broker is the best? Or that Binary Options have been forbidden for retail traders?
Our website is the ultimate resource for everything related to day trading and investments. We have spent many years investing in the above-mentioned markets and have always wished that there was a one-stop resource for us to use. We always wished there was a book or a website with all the information we needed and all the answers to our questions.
Unfortunately, we never found such a source which is why we created BullMarketz.com. Above all else, we hope that you will find the information we share useful.
With that said, we want to offer you good luck with your investments! And please don't hesitate to contact us if you have any questions.