By Nicholas Dockerty
Before you can start Trading in Contracts for Difference (CFDs), it is important that you have all the necessary tools to help you do this. This is very important because if you do not have the correct tools, you will put yourself at a disadvantage, which could see you miss out on profits. One of the first things that you need to do is understand how the stock market works, as well as to have knowledge about the stock you are interested in placing a CFD on.
The reason why it is important to understand the stock market is because you would be looking to place either a long position or a short position, depending on which way the market is moving. Markets also play a very big role in helping us understand investor sentiment.
The next important thing is to make sure you have done your research on the company or stock that you are going to trade on. By doing this, you will know whether or not the company is in a strong financial position. It is also important to know how to identify where the stock price may reverse, allowing you to more accurately choose a long or short position. Many investors often follow the trends of the stock or market, when they should be trying to find where these trend reversals will take place. These two points are crucial to know before you get started with your CFD trading. The next port of call will be to find a suitable CFD broker or trader who can execute your trades.
There are two types of accounts that you can open. The first will be an execution only account, whereby you will choose which stocks you want to place CFDs on, and what kind of position it will be. You should use this kind of account if you are confident in your trading abilities. In most cases, the trades will be done via the Internet, so it is advisable that you have a connection that allows you access to trade CFDs online at any time. Because this kind of account is more of a do-it-yourself type, the charges or commissions should be lower than that of an advisory account.
The other type of account will provide you with a broker, who will advise you on different strategies and tips on what stocks you should consider placing a CFD on. Other services that they offer would include keeping an eye on your account, making sure that they get you in and out of the trade at the best possible times so as to maximize your profits. Contact with your broker will be through e-mails, telephone and in some cases text messages, so that you are always informed. This kind of service may have higher charges and higher commissions than an execute only account. This is particularly useful for you if you do not have confidence or you are not familiar with the ins and outs of the stock market. However, you will always have the last say as to what you want done.
In both cases you will need to open an account and place a deposit (margin) in order for your broker to place the trades. Different brokers or accounts will require different amounts to open the account with. Find out what the margin policies are, as they can change at any time. It is also up to you to maintain your account with sufficient funding.
About the Author
For more information visit Australia’s number one CFD provider: www.igmarkets.com.au.
Always remember that trading CFDs can result in losses as well as profits, so make sure you fully understand the risks involved.
