What is a CFD trading?

A Contract for Difference (CFD) is a financial tool that allows you to speculate on the price movements of various assets like stocks, commodities, or cryptocurrencies without actually owning the underlying asset.

Here's how it works

When you open a CFD, you're entering into a contract with a broker. If you believe the price of an asset will go up, you take a "Long" (Buy) position. This means you expect the value of the asset to increase over time. On the other hand, if you think the price will go down, you take a "Short" (Sell) position. This means you expect the value of the asset to decrease.

Now, here comes the concept of leverage. When trading CFDs, you only need to deposit a fraction of the total trade value. Let's say you want to buy $1,000 worth of stock using CFDs; instead of putting in a total of $1,000, you might only need to deposit $100 as a margin. This gives you leverage, which means you can control a larger position with less money.

Here's an example of how leverage works: If you have a leverage of 10:1, your $100 deposit allows you to control a trade worth $1,000. If the stock's price rises by 5% and you open a long position, you'll profit $50 (5% of $1,000), five times more than the $10 (5% of $100) you would have made if you bought the stock without leverage. However, if you short the same stock with leverage and its price goes up 5%, you'll lose $50.

While leverage can amplify your potential profits, it also increases your risk. If the stock's price goes down, the losses are also magnified. So, it's important to use leverage wisely and be aware of the risks involved. Managing your risk and having a good understanding of the market is crucial when trading CFDs with leverage.

Learn more about the basics of short and long positions in this article 👈

How to start trading?

Step 1: Do your research about trading platforms

You'll need to find a trustworthy broker that offers CFD trading services (seems like you found Change - Congrats!). Look for a broker that is well-regulated (Change is regulated in the Netherlands), has a user-friendly trading platform, and is transparent about fees. You can do some research, read reviews, and compare different brokers to find the one that best suits your needs.

At Change, we have conducted a pricing research for you - review the findings and make a wise decision.

Step 2: Open an account

Once you've selected a broker (and we hope you choose Change), you'll be required to create an account. This involves providing relevant personal information, verifying your identity, and answering online questions about your trading experience. Next, you'll need to deposit funds into Change's CFD trading account. Initially, we will ask for a bank transfer, but afterward, you can use your card or even crypto for deposits. Start with a reasonable amount that you can afford to lose. It's crucial to acknowledge that learning to trade with only €10 is quite challenging, yet it's also impractical to deposit thousands right away while still in the learning phase.

Step 3: Learn About CFD Trading

Before you start trading CFDs, it's essential to have a good understanding of how they work and the risks involved. Learn about concepts like Long and Short positions, leverage, and risk management. Check our blog for educational materials and practice trading with test amounts first.

Step 4: Fund your account

After opening your trading account, you'll need to deposit funds into it. The amount you deposit will determine how much you can trade with, considering the leverage provided by Change (we offer a range of leverage from 2x to 30X on Forex). Be sure to only use money you can afford to risk, as trading CFDs involves the possibility of losses.

Step 5: Choose the asset to trade

Once your account is funded, you can start choosing the assets you want to trade. CFDs are available for various financial instruments, including stocks, indices, commodities, currencies (Forex), and cryptocurrencies. Select an asset you are interested in and that you believe you can analyze effectively.

Step 6: Analyze the market

Before placing a trade, it's crucial to analyze the market and the chosen asset's price movements. You can use technical analysis, which involves studying past price patterns and trends, or fundamental analysis, which involves examining the asset's underlying factors like company financials for stocks or economic indicators for currencies. It's also important to understand if price of an asset is in it's peak the chances it will go higher is lower, reverse goes for selling the asset in the lowest point. Situations might be different and you always make a final judgement before starting a trade.

Check out Change Telegram channel where people exchange their ideas and learn how to trade

• ‍International community for English speakers
• ‍Estonian community
• ‍Group for people who don't like noise and just prefer to read

Step 7: Place your trade

Once you've analyzed the market and decided on your trade strategy, you can place your CFD trade. If you believe the asset's price will go up, you'll enter a long (Buy) position, and if you think it will go down, you'll enter a short (Sell) position. Select the appropriate position size and apply the desired leverage (if available) based on your risk tolerance.

Step 8: Monitor and manage your trade

After placing your trade, it's essential to monitor its progress. CFD prices can fluctuate rapidly, so you should be prepared to adjust or close your position if the market moves against your expectations. Set 'Take Profit' and 'Stop Loss' levels to help manage your risk and potential profits.

'Take Profit' and 'Stop Loss' orders are free-of-charge, risk management tools that can be added to your trades when opening a new position or editing an existing one.

These orders empower you to have better control over your trade, as they enable you to set the rate at which your position will close (when it reaches or surpasses that rate). This is done to safeguard your profit in the case of 'Take Profit' and/or minimize your loss in the case of 'Stop Loss'.

Step 9: Close your trade

When you achieve your trading goals or if the market conditions change, you can close your CFD trade. If your trade was successful, the broker will credit your trading account with the profit. You can then decide to reinvest it or withdraw the funds to your bank account.

Summary

CFD trading can be an exciting way to speculate on the financial markets, but it requires careful research, risk management, and practice. By following these steps and continuously learning about trading strategies, you can improve your chances of success in the world of CFD trading. Remember to trade responsibly and only use funds you can afford to lose.

‍