(Newswire.net — February 13, 2016) — One of the more popular ways of earning money today is called Contract for Difference or CFD. It is a type of online trading process where the basis is the value of the difference of an asset. The difference is the value during the contract opened and closed.
The thing is that you do not own any asset when you are involved in CFD trading. Despite that, you can actually earn (or lose) depending on the direction of prices. This is possible because a CFD is categorized as a derivative product which is a result of a modified existing asset.
CFD Trading – How Does It Work?
It doesn’t matter if the price if an asset goes up or down. What is important is that you can earn from it by doing the right moves. There are only two moves that you will have to remember once CFD trading opens – long and short. You go long if you expect that the price of an asset will go up. You go short if you expect the price of an asset to go down. Aside from making a profit or suffering a loss, a CFD can also be the determinant of the value of your earnings or losses.
Here is how it goes. When trading opens and you expect the price of an asset to go up, the thing to do is to buy an asset. Your earnings will be higher every time the price goes higher. However, it can also go the other way around if the price declines continuously. However, if you expected the price to go down and went short when trading opened, your earnings will continually grow as prices of the asset goes down continuously. In this case you will incur losses once the market goes up past the original price.
The good thing about CFD is that it involves a wide variety of markets in which you can choose the underlying assets that you wish to trade. These include shares of stocks, commodities, forex and indices. There are a lot of similarities in online CFD trading compared to regular trading. The only two differences it has over regular trading are lower costs and the comfort it will offer you as you can trade within the confines of your home. However, a CFD may acquire you some losses lower than the deposit you first put since these are leveraged item.
When to Go Long and Short
There are always two prices identified for every asset that opens in the market. These prices are identified as the bid and the offer prices. The difference between the bid and offer prices is defined as the spread. To have a better chance in making a profit, you have to anticipate when the price is going up or down. If you think the price is going down, you will need to have to sell. On the other hand, if you think that the price of the underlying asset is going to go up, it is best that you buy it right away. The bid and offer prices come in this formula – bid price/offer price.
In CFD trading, the number of CFDs that you wish to trade will all depend on you. The only thing that you will have to satisfy is the minimum number of CFDs to trade.