What is CFD trading?

Between share CFDs, index CFDs and commodity CFDs, choosing your underlying asset is an important choice. Not sure which to choose? Check out our beginner’s guides to forex and forex trading for a broad overview of the underlying assets you can choose from.

Alternatively, discover which markets are hitting the headlines by following the latest market analysis reports and videos. You can discover the particular specifics of each CFD by visiting a broker’s contract specifications page, where you can find out about instrument leverage specifics and competitive trading costs.

Once you’ve decided what kind of CFD you’re going to trade, it’s time to decide on your position. Put simply, if you think the price of your asset will go up you can open a long position (buy), or if you think the price will fall you could open a short position (sell).

To decide what kind of trade you want to open, you can use a broad range of indicators, charts and signals. To find out more about popular strategies and indicators, you can visit our forex strategies guide.

Next, choose the size of the position you want to open. The value of a unit of the CFD you’re trading will depend upon the instrument, so you should calculate the number of CFD units that can work best with your trading strategy.

CFDs can be traded on the industry’s most popular trading platforms, including MetaTrader 4 (MT4) and MetaTrader 5 (MT5). These platforms are equipped with all the tools you need to trade CFDs, including over 50 technical indicators and charting tools. You can also trade on mobile apps, allowing you to keep track of your profits and losses in real–time, on–the–go.

Brokers typically offer CFDs with higher leverage than other traditional financial instruments. FXTM offers a leverage up to 1:2000 which can boost traders’ potential profits. The lower margin requirements of CFDs mean that potential returns are greater overall – however, traders should bear in mind that leverage can boost losses as well as profits.

CFDs grant traders the ability to go both long and short on instruments. Since the underlying asset isn’t actually owned, traders have greater flexibility and can open short positions on CFD trading instruments without worrying about additional costs.

Most brokers offer CFDs on a wide range of markets. You can enter the commodity, indices, stocks and metal markets with FXTM and trade these assets as CFDs, enjoying the opportunities and advantages associated with each.

Although CFDs spare traders from many of the costs of traditional trading, CFD traders are required to pay the costs of spreads. CFD traders have to pay the spread on entry and exit positions, meaning that it’s potentially harder to make small profits. The spread cost must be factored in to the calculated profits and losses resulting from CFD trading.

The good news here is that the FXTM Advantage account offers typically zero spreads on FX majors and as low as zero on Gold, which are CFD products.

CFDs do not come without risks. Trading these instruments can be risky and fast–paced, and traders should be careful to have a thorough risk–management strategy in place. Placing stop–loss orders can potentially help to minimise potential losses, but do not eliminate the risks altogether.