CFD Trading for Beginners

A CFD (contract for difference), by definition, is security calculated by an asset’s movement (between trade entry and exit), factoring in only the price change – without adding the asset’s underlying value.

Trading in this way offers investors the opportunity to profit from price fluctuations without having to own the underlying asset. Technically speaking, it is done through a contract between the client and a broker and does not use any forex, commodity, stock, or futures exchange.

This is How a CFD Works

For this explanation, we’ll use Tesla stock as an example. If a Tesla stock has an asking price of $100 and the Trader buys 100 shares, then the cost of the transaction is $10,000 (plus commission & fees). This trade requires at least $5,000 in available cash with a traditional broker in a 50% margin account. Whereas a CFD broker formerly requires only a 5% margin, or $500.

The Advantages of CFD Trading

  • Higher Leverage: A CFD provides higher leverage compared to of traditional trading.
  • Market Access from a Single Platform: Brokers often offer products across major world markets, which allows 24/7 access.
  • No Borrowing or Shorting Rules: Traders don’t own any underlying asset, which means CFDs can be shorted without any borrowing costs.
  • Professional Execution without any Fees: Brokers earn when the Trader pays the spread, but do not charge any fees or commissions.
  • No Requirements for Day Trading: Accounts can often be opened for as little as $1,000 without any minimum amounts of capital or place limits.
  • A Variety of Trading Opportunities: Brokers offer currency, stock, treasury, index, sector, and commodity CFDs.

The Disadvantages of CFD Trading

  • The Trader Pays the Spread: Having to pay the spread on entries and exits reduces the potential to profit from trades.
  • Industry Regulation is Weak: The CFD industry isn’t well regulated. It is, therefore, essential to research a broker’s background beforehand.
  • It’s Risky: CFD trading is fast-paced and requires constant monitoring.

Some of the Most Successful Traders

George Soros. George has a reputation for being the legendary money manager profiting over £1 billion from his short in the pound sterling, ahead of Black Wednesday, 16 September 1992.

Stanley Druckenmiller. Druckenmiller has a net worth of more than $2 billion. His trading philosophy is to preserve capital, then aggressively pursuing profits when trades go well.

Bill Lipschutz. Bill made hundreds of millions of dollars in profits at Salomon Brothers during the 1980s.

Andrew Kreiger. After the October 1987 crash, Andrew went short on the New Zealand dollar and ended up making $300 million for his company.

Paul Tudor Jones. Known for shorting the October 1987 market crash, Paul is one of the wealthiest day traders alive. He has amassed a net worth of $4.5 billion as of 2018.

Michael Marcus. During the Ronald Reagan presidency, he held positions of almost $300 million in German marks. It’s believed that he was one of the largest currency traders in German.

The CFD Trade Website

CFD trading offers several advantages. This includes easy access to global markets, lower margin requirements, no shorting or day trading rules, and no fees. When joining the CFD Trade Website, you get free access to the best broker in the UK with a free one-on-one coaching call within 48 hours of signing up.

Plus a personal mentor to help week after week, and access to the best available trading technology – a free starter-training kit worth over $2,000. And best of all, it only takes $250 to get started, and you can withdraw your capital whenever you choose.