What is CFD?
CFD stands for Contract For Difference. It is a trading contract, which you can use to speculate on asset price without the need to buy. What you do is you choose a broker, make an investment, and foresee the future asset price.
In case your forecasts are correct, you will receive the profit corresponding to the difference between the opening and closing prices. In case the speculations are inaccurate, you will incur a loss in the amount also identical to the difference between the opening and closing prices.
Here on Olymp Trade, all CFDs are available under the tab for the currency pairs in the instrument selection window.
CFDs have stormed the trading sector. You will also find them on Olymp Trade. Just be aware that there is always risk included.
CFDs give an opportunity to make good money in a short time. But they can cost you a big loss as well. That is why you should always have a trading strategy, exactly like in trading digital financial derivatives.
Why CFDs are so popular?
As was previously said, trading CFDs involves risk. But even with this risk, it might be worth to trade them. Let’s look together at the advantages CFDs have over other financial instruments.
Trading with leverage
While trading CFD you will discover a great tool called Multiplier. This powerful tool makes possible investing bigger amount of money than you actually have.
To illustrate it, let’s say you have $500. Choosing the multiplier 2:1, you can, in fact, invest $1000. Your broker, here Olymp Trade, will provide the remaining $500.
There is a great risk connected to using the multipliers. The temptation is big, you can make big amount of money without having such on hand. From the other side, it can also cost you a huge loss.
Professional traders will thus always recommend to have and to use a trading strategy. If you decide to use multiplier make sure that the choice of the multiplier is turned on in your settings.
Some of the traders prefer not to spend too much time trading. Or they do not have so much time in the week. For those people trading CFDs will be just perfect. It does not require a lot of time at the computer. You can make money within minutes.
To trade CFDs you may spend only 15 minutes daily on the platform. But most experienced traders will tell you, that it takes time and practice to have stable incomes.
What types of CFDs you can find on Olymp Trade?
You must have heard that currencies are now the biggest and most liquid market in the world. In order to trade currency pairs, you need to buy the currency pair at a low price, in a moment when you expect it will go up or sell when you expect a price to drop. After a while, when your predictions were correct, you close the position and make a profit.
With CFDs, it works almost the same. But it is a contract, so you are not actually buying or selling currencies. Instead, you just speculate on their prices.
The popularity of cryptocurrencies has largely increased. Some claim they will change the global financial system.
You can easily trade cryptocurrencies on Olymp Trade without worrying about complicating computer systems. One of the most popular electronic currency is nowadays bitcoin.
ETF – CFDs on indices
Today you have a chance not only to make money on currencies without buying them. You can also trade on the popular indices (ETFs). You need to keep up to date with the latest news in the corporate world to be able to anticipate the direction of the market. After analyzing the data you can grasp market patterns and make profitable predictions.
With Olymp Trade as your broker, you can speculate on the prices of precious metals. Gold and silver are available for trading through CFD.
First CFD transaction
To make your first CFD trade you need to provide necessary data into trade management section of the Olymp Trade platform. First, you need to provide a trade amount (1) and choose the multiplier (2). Take Profit (3) and Stop Loss (4) are not obligatory, but you can provide them. Those will close your trade automatically when your trade will earn the amount given in a Take Profit or when your trade loses the amount defined as a Stop Loss. Considering the profitability of your transaction you should always take Commission (5) as a trade cost. The last step is obviously choosing either buy or sell button (6).
To close a transaction manually, you simply hover your mouse on trade rectangle. Close the trade tooltip with the current profit/loss value will appear. When you click on that, your trade is closed. You can do the same through the Trades tab.
👍Pros and Cons👎
- Trading Flexibility: CFDs allow for short and long positions, enabling traders to profit from rising and falling markets.
- Leverage: By providing access to large amounts of capital, leverage can amplify potential returns.
- Variety of Markets: With CFDs, traders can access a wide range of markets, from forex and indices to commodities and cryptocurrencies.
- Risk of Significant Losses: Leverage also magnifies potential losses. Losing more than your initial deposit is a real risk with CFD trading.
- Overnight Funding Costs: Keeping a position open overnight incurs a charge, which can add up over time.
- Complexity: CFD trading can be complex and difficult for beginners to understand.
|CFD Trading Elements||Description|
|Leverage||This is a tool that enables traders to amplify their exposure to a financial market without increasing their investment.|
|Scalping||This is a trading strategy that aims to profit from small price changes. CFD trading is ideal for scalping due to its quick execution and liquidity.|
What the differences are between trading CFDs and digital financial derivatives?
The one main difference between CFDs and digital derivatives trading is the profit and loss limit. In the case of CFDs, you may earn or lose the amount of money corresponding to a difference between the opening and closing prices. On the contrary, in digital derivatives trading the profit or loss margin is fixed and doesn’t depend on the price.
The second large difference is the way of closing transactions. You can exit a trade any time you want while trading CFDs. However, in the case of a digital financial derivative, you can close the trade before the specified period of time but in this event, it’ll highly reduce your profit.
Why should you choose Olymp Trade?
Here are some good reasons why you should trade on Olymp Trade if CFDs have raised your interest.
- All-in-one platform. Olymp Trade is not only your broker but also a place where you get access to numerous useful tools. This is a trading platform where you will find market news updates, newsletters, calendars, volatility warnings and much more.
- Smooth service. Olymp Trade offers high quality service, not only fast but also reliable. These attributes, among others, have gained Olymp Trade fame of the largest brands in the trading sector. Now it is also possible to trade via IOS or Android devices.
- Solid support. On Olymp Trade, you can easily contact the support team and get all the answers in a matter of minutes.
You have now become familiar with CFDs. We invite you to try it on the Olymp Trade platform as well as to share your experiences and thoughts about it in the comments section down below.
For further information about currency pairs, digital derivatives, or cryptocurrencies, you may review supplementary articles.
We wish you only profitable trades!
- What are Contracts For Difference (CFDs)?
CFDs are derivative products that allow traders to speculate on the price movements of assets without owning them.
- What is leverage in CFD trading?
Leverage allows traders to open larger positions than their initial deposit would allow. While this can increase potential profits, it also magnifies potential losses.
- What risks are involved in CFD trading?
The main risk in CFD trading is that you can lose more than your initial deposit due to leverage. Market volatility and overnight charges can also contribute to losses.
- Can I trade CFDs on Olymp Trade?
Yes, Olymp Trade offers a range of CFDs across various markets, including forex, cryptocurrencies, indices, and commodities.
- Do I need a specific strategy for CFD trading?
Yes, due to the high risks involved in CFD trading, having a well-thought-out trading strategy and a good understanding of risk management techniques is essential.
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