CFD Trading Basics Concepts
Learning to trade the cfd market is much easier for beginners when beginners start by learning the cfd basics. This way the other cfd concepts become much easier to learn because the new cfd trader will have already learnt about the basic ideas before proceeding to the other cfd concepts.
The cfds trading basics that traders should learn first before starting cfds trading are:
What's CFD?
CFD Trading is the simultaneous buying and selling of one financial instrument for another. CFD traders buy and sell for speculation purpose and for the purpose of trying to make a profit. Traders will buy a cfd instrument that they think will appreciate in value and sell the cfd instrument which they think will depreciate in value.
In CFD traders buy cfd trading instruments when they become undervalued and sell cfd trading instruments when they become overvalued. This is the basic concept of trading cfd, as a beginner if you want to become successful when cfd trading you must learn to buy undervalued cfd instruments and sell overvalued cfd trading instruments. Many CFD traders miss this concept and do the exact opposite buying overvalued cfd trading instruments because that is when these cfd trading instruments seem to be moving up and up and they sell undervalued cfd trading instruments because these cfd trading instruments seem as if they will continue to move lower.
Just like in stock market successful trader buy stocks when the stock cfd price is low & sell stocks when the stock cfd price is high. This is the same trading concept that traders should follow when trading cfd.
What's a CFD Trading Instrument?
Cfds trading is the simultaneous exchange of one financial instrument for another, for this reason cfd instruments are traded in symbols known as cfd instruments.
What's a CFD Trading Quote?
Because cfd instruments are traded in symbols, the cfd price at which these cfd trading instruments are exchange is determined by the cfd trading quote.
CFD Trading quotes in CFD Trading are quoted in the format of 4 decimal places.
What's a Pip?
Cfds trading quote are quoted in the format of decimal places. The second last decimal place represents a Pip which is the smallest movement used to calculate profit and loss in cfd market moves.
Pip means CFD Price Interest Point: it is a one point move in the cfd trading quote.
What's a Lot?
CFD Trading is traded in units known as lots. There is also the Mini lot which is made up of fractions of the standard cfd lots & the Micro cfd lots which are fractions of the cfd mini lots.
Therefore, in the above example where the cfd instrument moved up by 50 pips if a trader was trading using one standard lot then their trading profit would be $10 multiplied by 50 pips which is $500 dollars.
What's CFD Leverage?
Because not many traders can afford to trade standard cfd lots which require a lot of money to trade, there is cfd leverage in CFD Trading which means that traders can borrow money and use the borrowed money to make trades with. For example cfd leverage of 100:1 means that a trader with capital of $10,000 can borrow upto 100 times using the 100:1 cfd leverage option & therefore after borrowing using this cfd leverage the trader will have a total of $10,000 multiplied by 100, which means the trader will have a total of $1,000,000. This cfd leverage is what makes CFD Trading accessible to retail cfd traders because retail traders can begin with little capital of their own and use cfd leverage to borrow the rest of the money required for trading. The money that the trader deposits is referred to as the trader’s margin & a trader can continue borrowing money using this cfd leverage option as long as they have the required margin in their account. This is why traders must have the required account balance in their account to open the trade transactions they want to.
What's CFDs Trading Margin?
Margin is the specific amount of money which a trader is required to put aside in order to continue holding an open cfd leveraged trade. Margin can also be explained as the deposit a trader is required to keep so as to maintain his open positions. This margin is a percentage of account equity that has to be set aside and allocated as a margin deposit for the open positions that are held by a cfd trader.
