What are CFDs and how can they be used to make money?
Contracts for difference allow a trader to enter the financial markets, and speculate on prices to make a profit without actually owning assets. In short, contracts for difference are contracts whereby a buyer and seller agree to exchange the difference in price of a financial asset between the current value and the end of the contract. If the difference is positive, the buyer earns the money, and if negative, the seller does. CFDs are traded in a wide range of financial markets, including both forex and the stock exchange. They are popular because they are an entry level product, and anyone can get involved by using an online broker. Essentially, the broker will act as either the buyer or seller depending on which direction you want to take.
CFDs are generally regarded as a short term vehicle for investment. This is because they are successfully profitable over a short period of time, but charges are incurred for holding positions overnight, which can soon eat in to profits. This is another reason many people trade CFDs in order to make extra money – profits can be seen quickly, and a huge amount of dedication is not required.
CFDs are very popular because they benefit from leverage, which is to say that the full value of the asset and position you are holding does not have to be deposited. Instead, you only need to put forward a percentage, which is often as low as 10%. This is known as trading on a margin.
Just as with all financial trades, there is always the potential for significant risk, and if the markets move against you, you could end up losing more money than you initially deposited. For these reasons, a proper strategy is essential. You must also remember to only trade when you see an opportunity, never just for the sake of it.
The process of deciding whether or not to make a trade is determined by speculation. Influencing factors come from a wide variety of sources, and it can depend on the market you’re trading in. The news is one of the major driving forces behind forex for instance. You can learn much about potential currency movements from general economic news, but there is a wealth of more complex analysis available for those who want to maximise their chances of making a good profit.
There is a great deal of information about CFD trading on the internet, so that you can learn before opening an account. Even once you do open an account, most brokers offer demo programs which allow you to trade the markets without actually ever using real money.
So if you’re looking to make some extra money, trading CFDs could be for you. All you need is to research your markets thoroughly, and have a small amount of investment. Money can be made quickly too. Remember to follow all of the information you gather, and there’s no reason you can’t make a good profit.
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