A Few Things About CFDs All Beginners Must Know
156-515.65 CFD trading is a relatively new concept in Australia, but seems to be catching on fast. A lot of people are hopping in with the lure of big profits that can be made by leveraging low margin requirements. Is CFD trading really a cake walk compared to stock trading? Many experts will say yes, churning out a big list of advantages CFDs have, adding some success stories to go along with it.
This, however, should not lure newcomers to start CFD trading straightaway. What people really need today is having an experienced trader or an advisor explain in depth the key differences between CFDs and share trading. In addition, newcomers to this form of investment must be made aware of the unique risks that CFDs present.
On Understanding CFD Trading
Not only can CFDs be effectively used as a hedging tool over stocks, but can also be successfully exploited to get exposure to commodities, international equities, and indices. A good idea for beginners is to kick off with someone who is not solely a CFD broker, but also someone who provides services in financial planning and funds management. This way, novices learn the best way to manage a portfolio of investments and also get to understand the pros and cons of different forms of financial trading.
156-100 Here is a look at the two basic differences between CFD trading and stock trading.
* Whenever you buy equity in the market you have to pay through the clearing house for the entire stock value you purchased within a margin time of, say, three days. In contrast, majority of CFDs are over-the-counter (OTC) trades and does not involve an exchange. However, Australian Securities Exchange has made a beginning in 2007 by introducing exchange traded CFDs. The advantages of exchange traded CFD is more than offset by higher costs, limited products, and pricing.
* Contracts for difference are traded on margins which in effect mean the trader has leverage. Leverage is using a small deposit to have access to a much larger equivalent quantity of assets. Low entry threshold is a key feature of contracts for difference.
Some other notable features of CFD trading are- there is no expiry date and new instruments are easy to create as CFD is not governed by exchange rules. Successful trading in any new instrument requires an in-depth knowledge blended with the right type of experience, plus having an edge with the right type of information.
About Losing
All types of trading involve losses, something which new entrants must understand and assimilate if they want to make money in the long term.
156-215.65 Inability to digest losses signals a demise of the trading instinct. The key to successful trading involves taking losses when they should be taken. This means that a good trader should take a small loss in time before the damage spirals out of hand. Closing a position in time very often is a wise decision that precedes switching over to profitable trades. This is the basic rule that all beginners to CFD trading must embrace.
In the long run, traders must take responsibility of their actions and not blame the market for the muddle they are in. In any market, including CFD, traders would do well if they do not think in terms of losses and profits, but think in terms of shifting funds to trades with better opportunities.
This, however, should not lure newcomers to start CFD trading straightaway. What people really need today is having an experienced trader or an advisor explain in depth the key differences between CFDs and share trading. In addition, newcomers to this form of investment must be made aware of the unique risks that CFDs present.
On Understanding CFD Trading
Not only can CFDs be effectively used as a hedging tool over stocks, but can also be successfully exploited to get exposure to commodities, international equities, and indices. A good idea for beginners is to kick off with someone who is not solely a CFD broker, but also someone who provides services in financial planning and funds management. This way, novices learn the best way to manage a portfolio of investments and also get to understand the pros and cons of different forms of financial trading.
156-100 Here is a look at the two basic differences between CFD trading and stock trading.
* Whenever you buy equity in the market you have to pay through the clearing house for the entire stock value you purchased within a margin time of, say, three days. In contrast, majority of CFDs are over-the-counter (OTC) trades and does not involve an exchange. However, Australian Securities Exchange has made a beginning in 2007 by introducing exchange traded CFDs. The advantages of exchange traded CFD is more than offset by higher costs, limited products, and pricing.
* Contracts for difference are traded on margins which in effect mean the trader has leverage. Leverage is using a small deposit to have access to a much larger equivalent quantity of assets. Low entry threshold is a key feature of contracts for difference.
Some other notable features of CFD trading are- there is no expiry date and new instruments are easy to create as CFD is not governed by exchange rules. Successful trading in any new instrument requires an in-depth knowledge blended with the right type of experience, plus having an edge with the right type of information.
About Losing
All types of trading involve losses, something which new entrants must understand and assimilate if they want to make money in the long term.
156-215.65 Inability to digest losses signals a demise of the trading instinct. The key to successful trading involves taking losses when they should be taken. This means that a good trader should take a small loss in time before the damage spirals out of hand. Closing a position in time very often is a wise decision that precedes switching over to profitable trades. This is the basic rule that all beginners to CFD trading must embrace.
In the long run, traders must take responsibility of their actions and not blame the market for the muddle they are in. In any market, including CFD, traders would do well if they do not think in terms of losses and profits, but think in terms of shifting funds to trades with better opportunities.
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