What is CFD trading? What are the best platforms for online trading? What are the characteristics that these should have?
These are questions that all those who wish to start trading CFDs ask themselves. Of course, modern technological devices allow everyone to start trading, at any time and wherever you are, but this does not mean that you have to throw yourself headlong into this world, because the risk of breaking your head is very high.
To be successful with CFD day trading, you need to study, gain experience, and then possibly use an automated trading platform to get started.
In fact, the web is bombarded with platforms that promise to change your financial life overnight, but a little more in-depth research would be enough to understand that these are real online scams that are based in certain tax havens.
That is why we advise all our readers to rely only on regulated and safe brokers. In fact, all those reported in this study are authorized by CONSOB.
Furthermore, these brokers not only allow you to trade CFDs, but also to trade cryptocurrencies, forex, options and much more. Finally, they offer their clients a range of services to improve their skills, such as a trading library to learn the basics of the markets.
What are Contracts for Difference (CFD)
You know what trading is, well it's already a first step. But what are CFDs, or contracts for difference? These are financial instruments, the price of which is directly linked to that of other types of investments.
CFD trading allows the trader to speculate on the decrease on the rise in prices regarding the financial markets around the world and in fast moving such as currencies, treasuries, clues, stocks and commodities.
Those who buy a CFD make a profit if the value of the underlying asset increases, while they lose otherwise. Those who sell, on the other hand, do the exact opposite, earning when the value decreases and vice versa.
CFD trading, which is very popular in both Italy and Great Britain, is also available in many other countries in Europe and the world, such as Germany, Switzerland, Portugal, Holland, Australia, Singapore, South Africa and Japan, among others . They are not allowed in the US, however, due to severe restrictions imposed by the US Securities and Exchange Commission.
Characteristics of CFD trading
First of all, we must remember that CFD trading has unique characteristics and that help it to clearly distinguish itself from other forms of investment, such as forex trading.
However, in most cases, brokers who offer the possibility of trading CFDs also provide users with tools to do, for example, commodity trading or bitcoin trading, despite the differences.
CFD trading allows you to trade various assets, such as:
- Raw material
and more. CFD trading takes place between a company and an investor. CFDs do not have standard contracts, as companies can each create their own CFDs, obviously following the global certificates.
How CFD trading works
How to trade CFDs? To trade CFDs it is necessary to open an exchange through a broker that offers this type of service. Doing so opens a position on a specific instrument. This "position" does not expire, so you can keep it open for as long as you want.
The gain or loss derives from the difference between the opening price and the closing price. Some CFD trading companies charge fees to open a position or to keep it open for a long time, but not always.
While CFD trading does not expire as mentioned above, it is possible that intra-night open positions can be reinvested. What do you mean? That any gains / losses will be calculated and credited / debited to the user's account overnight, and then reopened the position the next day when the markets reopen.
CFD trading is done on margin and this means that it can also be very risky for the trader. In this regard, we want to advise you to deepen the topic of margination with a nice online trading course, if you don't know what it is.
How much does CFD trading cost?
As mentioned above, some brokers may require you to pay some fees for opening positions. But these are not the only ones present in this world.
CFD trading may be subject to a daily financing fee, which means that a fee will be applied each day if provided by the broker. In this regard, we remind you to always read the terms and conditions of the operator before choosing him to do CFD trading.
Generally, however, most brokers do not charge any commission to withdraw their money earned through CFD trading and therefore every penny earned will be available to the trader at any time.
What is margin in CFD trading?
When trading CFDs it is necessary to respect a defined market maker or brokerage margin. Generally, the margin fluctuates between 0,5% and 30%.
This allows the trader to open positions via trading apps that are greater than his own capital. Obviously, this increases the potential profits, but also the potential losses.
CFD trading allows the trader to go up or down any position, using a "margin" represented by their initial deposit.
There are two types of margin in the world of CFD trading:
- initial margin, which as mentioned above ranges from 0,5% to 30%
- variable margin, which is the market price to fix
What is leverage in CFD trading?
With leverage it is possible to open an account on a broker even with a relatively small capital and start opening larger positions than we could actually afford to invest.
CFD trading uses leverage regularly and this is one of the main reasons it is so popular. With this tool, you can buy / sell assets for an amount greater than your own capital.
CFD trading brokers offer different leverage, but the most popular are:
In short, operating with a leverage of 1:50 means moving 50 euros for every euro invested. Of course, this is also a double-edged sword. As potential profits increase, so does the risk of losing all your capital.
What are CFD trading platforms
These are platforms through which general trading of CFDs can be performed. The platforms are all different and while some require the use of their software directly from the browser, others require the installation of a program on their PC / device.
Others still, provide trading apps to download on your mobile or tablet, to make CFD trading even while on the move. Below we will take a look at one of the most popular.
What does a CFD trading platform offer? There are several services offered as we will see later and each broker has some that others do not have, such as mirror trading, which allows you to copy the transactions carried out by other traders evenly.
How to choose a platform for CFD trading
A broker should be chosen primarily based on the trader's needs. So the availability of a mobile app if you want to trade on the go, or one that allows you to start with a small investment if you don't have large capital. Here are all the features to consider to choose a broker that suits your needs.
- Regulation and license
- Commissions and spreads
- Customer service
- Formation Center
- Financial news
- Complete and easy to use platform
- Test account
- Mobile CFD trading app
- Financial leverage
- Trading signals
eToro: one of the best platforms for CFD trading
eToro is without a doubt one of the best platforms for CFD trading. First of all, it is a perfectly regulated broker launched on the web back in 2007. Today the company is one of the most used to trade CFDs and one of the most popular, for giving life to the so-called Social trading.
Social trading is basically a copy trading with social functions. Copy trading allows traders to copy trades made by the platform's most successful traders. A bit like when at school you copied from the best in the class.
But copy trading evolves into social trading, when functionalities are added to the platform to interact with other traders. In fact, on eToro, it is possible to see and communicate with other traders, just as if you were on a classic social network.
Another modern concept is the CopyPortfolio designed by eToro. This allows you to follow specific trading strategies, with which you automatically follow the most successful traders with your account.
Those who want to trade CFDs in a modern way are therefore invited to open a new account on the eToro platform, one of the best choices for online trading and not just Contracts for Difference.