Introduction to the Financial Markets: A Beginner’s Guide to Opening a CFD Position
The financial markets can seem daunting to those who are new to trading. However, with the right knowledge and tools, anyone can learn to navigate the markets and potentially profit from them. One way to participate in the financial markets is through Contracts for Difference (CFDs), which allow traders to speculate on the price movements of various assets without actually owning them.
Here are five steps to help you open your first CFD position:
- Choose a Market
The first step is to choose a market that you are interested in trading. There are many different markets available to CFD traders, including stocks, currencies, indices, and commodities. It’s important to do your research and familiarize yourself with the market you are interested in trading. Look for news and analysis on the market to get an idea of what’s happening in it. Popular assets among beginner traders include major FX pairs, headline indices, and blue-chip stocks.
- Decide Whether to Go Long or Short
Once you have chosen a market, the next step is to decide whether you want to go long or short. Going long means buying an asset in the expectation that its price will rise, while going short means selling an asset in the expectation that its price will fall. Different traders make decisions based on different data. Fundamental analysts, for instance, will look at the facts and figures, while technical traders only look at price charts. Choose to buy if you think your asset is headed up or sell if you believe it’s in for a negative move.
- Select Your Trade Size
The number of CFDs you buy or sell will dictate the value of your trade, as well as how much you make or lose for every point of movement in the underlying market. Your CFD may also be valued in different currencies for different assets. Remember, CFDs are leveraged – so you won’t have to put up the full value of your trade upfront. You’ll pay to open a CFD position in different ways depending on which market you are trading. If you’re buying or selling a share CFD, then you’ll usually pay commission – just like investing in shares with a broker. Most other markets have these costs included in the spread.
- Add Stops and Take Profits
Stops and take profits are orders to automatically close your trade once it reaches a certain level. They’re an important part of managing risk. Add a stop to tell your provider to close your position if it hits a specified level of loss. Take profits, on the other hand, will close your trade once it has moved a certain amount in your favour. Decide a profit target and a maximum loss from your trade, and add a stop and a take profit accordingly.
- Monitor and Close Your Position
Once your trade is open, you’ll be able to see any running profits or losses on the open positions tab of your platform. As the underlying market moves up and down, you’ll see its price movements reflected in the value of your position. You’ll close your trade by dealing in the opposite direction to when you opened. If you sold 15 CFDs at the outset, now you’ll need to buy 15 CFDs to net off your exposure. Alternatively, if the market’s price hits your stop or take profit then your position will be closed automatically.
In conclusion, opening a CFD position can seem daunting, but by following these five steps, you can get started in the financial markets. It’s important to remember that trading involves risks and it’s recommended to start with a demo account before moving onto a live account. By doing your research and utilizing the tools available, you can potentially profit from the financial markets.
