Heres What You Need to Know Before You Start Day Trading with CFDs

Here’s What You Need to Know Before You Start Day Trading with CFDs Day trading sounds like a dream job, especially if you’ve read the success stories of moms and everyday women turning trading into lucrative careers. But just like with any other type of investing, you must take the time to educate yourself and “learn the ropes” before you start seriously diving into day trading with CFDs. Here’s what you need to know. CFD Stands for Contract for Difference CFDs are contracts for difference. Among traders, they’re called “derivatives.” Unlike a stock, you don’t actually own anything when you buy a CFD. Yes, a CFD is a contract, but it is not a contract to transfer possession of anything. The contract’s results derive from contracts between other people. Essentially, you are contracting on whether the value of an asset will appreciate or depreciate over a pre-determined period of time. Traders Can Take Long or Short Positions When trading CFDs, you can take “short positions” or “long positions.” Short positions are just a day or two, while long positions are a week or more (sometimes months). Education is Key Educated, informed traders are successful traders. It’s important to understand how to interpret market data to make smart trades. Margins and Leverage When trading CFDs, there are two terms that you’ll see frequently: margins and leverage. Margins are the initial deposit required to open and hold a CFD position. The amount of margin required will vary, depending on the tradeable instrument. CFD trading operates using leverage. Traders are only required to deposit just a small percentage of the full value of the underlying instrument in order to open the desired position. But keep in mind that this applies to wins and losses. Losses are leveraged as well, and can result in you losing more than your initial investment if you don’t have a good risk management plan in place. CFDs Have Higher Leverage Compared to traditional trading, CFDs provide higher leverage. Standard leverage in the CFD market can start as low as a 2% margin and go up to 20%. These figures will rise substantially under the new rules that are set to go into effect soon. No Day Trading Requirements Some markets will require minimum amounts of capital to day trade, or will place limits on the number of day trades that can be performed in certain accounts. With the CFD market, there are no restrictions on day trading. Accounts can be opened with as little as $1,000, but it’s more common to see minimum deposit requirements of $2,000-$5,000. Regulation is an Issue If you’re considering trading in CFDs, it’s important to understand that the industry is not highly regulated. A broker’s credibility is based on reputation and financial position rather than liquidity or government standing. That being said, there are many excellent CFD brokers out there. You just have to do your research and educate yourself before making a final decision. There’s much to learn if you’re new to the world of CFD trading, but if you take the time to educate yourself, you’ll find that your venture can be a very profitable one.