Trading via contracts for difference (CFDs) can be a great way to diversify your investment portfolio. CFD trading has many advantages, but as with any form of trading, it comes with risks. This means that finding the best CFD trading platform for you is essential.
In this article, we will explain how CFD trading works and how to find the best CFD broker, so you can be sure you’re using the right platform for you and your trading style.
What is CFD trading?
You can trade CFDs on various markets, including stocks, indices, commodities and currencies (forex). Unlike traditional trading, CFD trading does not involve ownership of the underlying asset. The exchange is made on the basis of speculation on price movements on the market.
CFD is a contract between the trader and the CFD broker or trading platform, acting as an agreement between the two parties, to pay the difference in price between the opening and closing of the contract.
There is no physical exchange for CFD trading, rather it is done through online trading platforms. The value of CFDs, as well as supply and demand, are determined by a network of CFD brokers.
What makes a good CFD trading platform?
There are certain things you can look for when choosing a CFD trading platform, which can make it stand out among the rest. Before opening a trading account, here are some of the advantages that the trading platform can offer you:
Most CFD trading platforms offer leveraged trading. This allows for more market exposure, with less capital. The rest is basically borrowed from the CFD broker. Leveraged trading magnifies your position and is reflected in both your profits and losses.
CFD trading platforms operate in terms of leverage ratios, and you should first understand the ratios offered by your chosen platform. The best trading platforms will have reasonable leverage ratios and reflect your position relative to deposited capital. For example, a leverage ratio of 100:1 would mean that to trade £100,000 of an asset, £1,000 would be needed.
Risk management should be a priority in your trading strategy, assessing the maximum losses you are willing to take or the target profit you want to achieve.
CFD trading platforms can offer you risk management tools and trading orders to help you. For example, a stop loss Where Limit order allows you to set a specific price when a buy or sell instruction will be triggered. A stop loss works on the basis of protecting your profit once it reaches your desired amount, while a limit order aims to minimize the losses incurred and exit the market accordingly.
It is therefore worth checking which of these tools (or more) your chosen CFD trading platform has to offer.
Practice makes perfect, and the same can be applied to CFD trading. If you are new to the world of trading and investing, the best platform for you will give you the opportunity to test your strategy without using your real capital.
A free demo account reflects the movement of the underlying market and thus allows traders to deepen their knowledge of the market as well as their trading strategy. If your techniques are successful, you can enter the real market, with real money, making a more informed decision.
- Accessibility to markets and assets
Some of the best CFD trading platforms will have a wide range of instruments to trade, as well as access to global markets – all from a single trading account. With a variety of assets, you can strive for a more diversified investment portfolio.
CFD trading has many advantages, including the use of leverage and risk management tools, as well as the ability to speculate on rising and falling markets. As with any investment, it is important to make financial market researchas well as the trading platform, before opening a trading account.