CFD trading – what you need to know

Trading on different markets is a growing trend in India and all over the world. From traditional stock trading to forex trading, CFD, and the fast-growing cryptocurrency trend. Here, you will get an insight in CFD trading and find out why it interests more and more people.   

CFD is short for “Contract for difference” and is the most popular type of derivates trading. As opposed to trading with for example stocks, you don’t own any assets. Instead, you’re speculating on the prices of the underlying assets. These assets can for example be currencies or stocks. People who start CFD trading in India do it for different reasons. Some of the benefits are the high leverage, the low entry barriers, and the possibility to earn money on both rising and falling prices.

CFD trading: How does it work?

When you trade with a contract for difference, you have the ability to exchange the price difference from buying to selling. Buying means you open a position and selling means you close it. You can profit from going long or going short, which is one of the main differences from other types of trading.  

In CFD trading, you choose how big amount of a certain asset that you want to buy or sell. This determines how big your potential profit or loss will be. The difference between the buy and sell price is called the spread.

How to get started

Getting started is quick. To start trading CFD in India, you need to pick a licensed broker on a platform, where you open an account. After that you deposit your desired amount of money into the account in order to take a position. However, signing up with an Indian broker could mean a bigger risk since CFD trading in India doesn’t have any solid legal protection. Because of that, Indian residents may be better off signing up for a broker based in a different country.

What are the benefits?

There are several reasons to why people take an interest in CFD trading.

• One of the main benefits is the large range of markets you have available. For example, cryptocurrencies, shares, forex, and options. This makes it easy to diversify and thereby lower your risk.
• You can trade and make a profit on both falling and rising markets, depending on if you think the price will go up or down. This makes CFD a good alternative to investing, where a falling market always means a loss of money.
• High leverage means you don’t have to pay the total value when opening a position. Instead, you pay a margin. Your profit or loss will still be based on the full value.

Risks of CFD trading

Big potential rewards also mean big potential risks. It’s important to do your research and be aware of the risks when starting to trade. Some brokers offer demo accounts where you can try out trading without having to invest any real money to start with, giving you the chance to become familiar with the system. By learning trading strategies and researching your investments, your chances of being successful improve significantly.