In CFD trading, there are a lot of ways to become profitable. You can trade without owning the underlying asset. You can open a position just by paying a small percentage of the full amount of the asset. You can go long or go short, something that allows you to become profitable even when the market is down. You can take advantage of all these trading opportunities only if you have a full understanding of the market and how trading CFD is done.
Therefore, if you are new to the market, it is right to have a thorough understanding of CFDs so you can prepare yourself with the possible outcome, the drawbacks and the loopholes that you need to fill as you take risk in this ever complex instrument.
Is CFD Trading For Beginners?
Trading CFD is for all. You do not have to be an expert in economics and other financial stuff to become a successful CFD traders. However, as a beginner, you still have a long way to go to become a profitable trader capable of delivering a string of profits every time you open a trade. As you are new to the market, you might ask yourself – Is trading CFDs really for me? What is CFD? How does it work? Can I become profitable if I fully understand the process of each trade? Although these questions are considered basic, its answer holds a great importance when it comes to your success as a trader.
A Contract For Difference is mostly defined as the buy and sell of CFDs, which are derivative products that allows you to speculate on the movement of the financial market. You can trade different instruments using one platform in CFD. These instruments are commodities, shares, indices and Forex. Furthermore, you are not owning the underlying asset once you trade CFD, thus, you are exempted from tax liabilities such as Stamp Duty for UK traders.
Different Indicators in CFD Trading
Indicators in CFD trading help you determine the direction of the market. Once you point out which direction the market will take, you can make better decisions which can influence your profits in trading. There are different indicators in the market and they take different forms. There are some indicators that focuses more on chart patterns while others take account the past movements of the underlying asset. Some of the most popular indicator that we have nowadays are moving average, MACD, and Bollinger Bands.
Moving average allows you to identify trend directions in the market. It analyzes data points through the different subsets out of the data set. Moving average is considered as the favorite tool in technical analysis.
Moving Average Convergence Divergence (MACD) involves two moving averages then compares it with each other. Divergence signals a slowing down of the market trend while convergence means that the market is preparing to make a reverse.
Bollinger Bands is an analysis tool mostly useful when it comes to trading assets that are outside normal levels. When two bands are tighter, there is lower volatility.