Since the start of the pandemic, online trading has exploded in popularity. What started as an alternative to sports gambling has converged with the Wall Streets Bets culture, meme stocks and coins, and much more.
All of the exuberance is due to stimulus money creating a glut of cash that is pouring into markets of all kinds – housing, crypto, stocks, and more. With trading on the rise, the newcomers over the last year and then some are starting to catch their cleats, and are seeking more advanced trading tools and experiences.
Instead of simply investing, these traders are looking to take speculating more seriously, and get the most out of markets while they’re red hot. One such way traders can access a variety of trading instruments with ease and flexibility is with CFDs.
We’re breaking down what CFDs are, and how to get started trading CFDs on crypto, stock indices, commodities, forex, and more. Read on for an introduction to CFD trading on the award-winning margin trading platform PrimeXBT.
CFDs to start, stand for contracts for difference. The contracts portion of the definition refers to the fact that there are no actual assets being exchanged. Instead, CFDs are a type of derivatives contract that acts as an agreement between a buyer and seller to settle a contract at a later to be determined price. The difference refers to the amount of profit or loss generated from the time the contract is opened until it is closed, which is determined by how much the price of an asset increases or decreases during that time.
If a trader expects the market to go down, they will want to go short on the asset in question using a CFD. The same works in inverse, with traders taking out a long position when they expect the market to rise.
Speculating in this way is common among professional traders, who regularly seek tools like Futures, Options, and CFDs. CFDs are like Futures and Options in which they all allow traders to speculate, however, only CFDs aren’t tied to an expiration date. Futures require traders to settle a contract by or before a date, while Options allow traders the option to settle or not.
This prevents large losses and reduces risk, but in exchange, the premiums are through the roof. CFDs require modest fees, but there’s no time period and provide the most flexibility of all potential choices. CFDs also allow traders to place a stop-loss order to prevent unwanted drawdowns or substantial losses, as well as a take-profit feature that closes when a target is reached.
CFDs come in all sorts of exotic forms which is another pro for both the user and the broker. For example, a cryptocurrency exchange typically only deals in crypto assets. A stock exchange only deals in stocks. A forex broker might only deal with forex, or perhaps some metals. However, with CFDs, a broker like PrimeXBt is able to offer crypto, forex, commodities, metals, stock indices and more all under one roof.
Crypto instruments include Bitcoin, Ethereum, Litecoin, EOS, and Ripple. Forex markets include all majors, plenty of minors, and also a variety of exotic trading pairs. Stock indices also include the biggest and best, ranging from the Dow Jones Industrial Average to the S&P 500, the DAX, FTSE, and several other heavyweights. Commodities consist of the most important industrially, such as oil and natural gas. There are also markets for gold and silver.
CFDs are more common on margin trading platforms, which also offer leverage as a way to increase the amount of possible profits while keeping capital requirements at the bare minimum. The capital on the line is at risk more so than with spot trading, but by putting so little on the line it keeps risk to overall capital lower. Traders are able to get similar profits with much less exposure to their capital.
PrimeXBT is an award-winning margin trading platform that’s received industry recognition for everything from crypto to forex, and the customer-focused approach is evident in its complete suite of tools. Built-in charting software keeps professional traders prepared and more profitable, while alternatives to trading such as Covesting copy trading can work wonders for newcomers who haven’t had time to learn markets.
The Covesting copy trading module on PrimeXBT is available to all users from within the PrimeXBT dashboard with just a few clicks and lets anyone become a follower or strategy manager. Strategy managers must rise the ranks of the Covesting leaderboards to gain attention and attract followers with high total profits. Followers must choose wisely from the growing list of strategy managers as to where to put their capital.
Once connected, a follower will then copy the trades of a strategy manager of their choosing, letting them learn and profit, all while keeping risk at a minimum by entrusting capital with a proven strategy manager. With their total profits and rank on the line, strategy managers must do their best in every trade to keep profits flowing or risk losing followers to the next best thing.
Covesting will soon bring their Covesting Yield Accounts experience to PrimeXBT also, allowing anyone to connect to top DeFi protocols without all the technical expertise that’s normally required to connect wallets and more. Covesting Yield Accounts are due later in the year around Q3 2021.
Even with all these alternatives, even strategy managers are relying on long and short positions, stop-loss orders, and all that comes along with CFDs. CFDs give traders more flexibility, more trading instruments, more profits, and more ways to trade. It is exactly why CFDs are increasing in popularity and are catching up to Futures and Options trading volume globally as more brokers begin to offer innovative trading tools. With PrimeXBT, that innovation is already available and why they were honored with several industry awards for it.