CFD contract trading is gaining popularity among traders. CFDs on stocks are in particular demand, with the help of which currency traders expand their list of financial assets.
In the blog, we will look at the features and advantages of this trading instrument and discover why it is better to run Forex deals with DotBig trading support.
What is a CFD?
The common definition CFD stands for Contract for Difference and means a contract for value difference. CFD is a derivative financial instrument (derivative), the underlying asset of which can be both stocks and stock indices, metals, cryptocurrencies and even fiat currencies.
By trading this instrument, a trader acquires not the asset itself, but its price, using the difference between the opening and closing quotes of a position for speculative earnings.
CFD is a popular asset for seasoned traders, which is dealt between a trader and a broker on an internal Forex platform. CFDs make it easier to make a profit and make financial instruments less expensive.
The stock market, in particular the American one, attracts huge amounts of capital, as company securities make it possible to earn both intraday and positionally.
However, it is not so easy for an investor from the CIS to gain access to American and European stock exchanges without being a resident of these countries. In addition, stock brokers have restrictions on the size of the minimum account and the minimum lot size.
Special trading platforms are also used for work, which you need to pay for, which increases trading costs. And if you add to this the exchange fees and the broker’s commission, trading stocks on the stock market becomes expensive, which reduces the amount of profit earned.
Unlike trading stocks directly, CFDs have a number of advantages. In speculative trading, you get the same profit as on the shares themselves, although by opening a position, you do not become a shareholder of the company, but earn only on the price difference.
No special terminals are needed for operation, as most CFD brokers operate using free platforms, the most popular of which remains MetaTrader 4.
Transaction opening fees are usually lower than on the stock market, which reduces the expense side. And you will need much less documents and time to open a trading account.
One of the advantages of CFD dealing is the ability to use a broker’s leverage. This means that you will need less of your own funds for the transaction, or you can open a position in a fractional lot (0.1 lots, 0.01 lots).
Advantages of trading CFDs on stocks
At the moment, CFDs on stocks have gained the interest of currency traders, and most brokerage companies that provide their clients with access to the Forex market make it possible to trade CFDs on stocks in parallel with currencies within a single trading account.
This approach combines simplicity and convenience, as well as the possibility of diversification, which is important for reducing risks in independent trading and investing.
So, if you are already trading on the Forex market or DotBig investments, what do you need to know before adding CFD contracts on stocks to your trading arsenal?
Firstly, they completely repeat the dynamics of the quotes of the underlying asset, which will allow you to make the same profit on price movements as when trading stocks directly on the stock exchange, but with lower costs. At the same time, if you have learned how to make money on the foreign exchange market, it will not be difficult to adapt your trading system to stock instruments.
Secondly, trading costs are significantly reduced if you trade CFDs on these securities instead of stocks on the stock exchange.
For comparison, the cost of paying for a trading platform to work directly with securities is about 5-10% of the deposit (if your trading account is up to $5,000). In this case, your trading system should bring from 60% per annum only to cover expenses.
Is it worth noting that CFD trading has a significant advantage in this matter, since most brokerage companies provide the opportunity to trade these instruments on free platforms, most often on the well-known MetaTrader 4 or 5 terminals.
Types of CFDs for Trading on DotBig
With DotBig forex broker, you can take advantage of various types of CFD deals. Choose the markets in which you are most experienced. Check out the types of CFDs offered by our online broker:
- Forex. The foreign exchange market is a market where you try to profit from fiat currency pairs. With our broker, you can speculate on major, minor or exotic pairs. Select assets with suitable trading volumes and determine which is better – long or short positions.
- CFDs on exchanges. These CFDs allow you to speculate on the stock market and benefit from changes in the share prices of the most popular companies.
- Indexes. Such CFDs give you the opportunity to take advantage of changing stock index prices.
- Digital tokens. We offer a very wide selection of CFDs that are available on the cryptocurrency market. This is your chance to benefit from the most volatile financial market.
- Raw goods. Study global events that can cause the prices of certain goods to rise or fall, and choose which positions are better to open – long or short.
Guide on How to Trade CFD Contracts
To take advantage from trading CFDs on stocks, a Forex player should learn more about this type of activity for day traders and follow a few simple steps:
- Create a personal profile on DotBig broker site. An online broker gives you the opportunity to speculate on various financial markets without acquiring ownership of certain products.
- Fund money up to your financial possibilities and goals.
- Decide which financial market will be the most profitable for you when trading CFDs. According to DotBig reviews, the platform offers trading in a wide range of markets, including stocks, forex, cryptocurrencies, indices, and commodities.
- Decide whether you will trade long or short positions or use both of these strategies.
- Determine your budget and do not exceed the pre-determined losses. Stick to your plan and follow the key principles of risk management.
Besides, on DotBig site advanced tools you will be able to monitor your positions and close them on time.