Trading CFDs is becoming increasingly popular among retail investors. But what is the advantage of these “contracts for difference”? When trading with CFDs, trading only takes place between the trader and the broker. If you buy Forex trading Australia, for example, you are not buying a “real” DAX. Nevertheless, you can benefit from the price movements of the German leading index with the CFD. The main advantage as an investor and trader is that you can use leverage when trading CFDs. We will illustrate this with an example below. For this we assume that the DAX stands at 10,000 points. If you want to trade with the index without leverage, you actually need € 10,000 on your trading account. With a German or European broker, however, you get a leverage of up to 1 for trading stock indices: 20 made available. This means that the amount of capital required is reduced to € 500. If, on the other hand, there is actually € 10,000 in the trading account, you can not only trade with 1 DAX CFD, but with 20 DAX CFDs.
If the price of the DAX changes by one point, this leads to a profit or loss of € 1 when trading with Online trading. In the course of a day, however, there will be regular major price fluctuations. So if a trader manages to earn 50 points, for example, this corresponds to a profit of € 50. If, on the other hand, you had traded with 20 DAX CFDs, the profit would also increase by a factor of 20 to € 1,000.
Depending on the financial instrument traded, you can use different levels of leverage as a trader. The leverage is highest at 1:30 in currency trading. Then come the already mentioned share indices at 1:20. For commodities such as oil and precious metals such as silver, the leverage is already noticeably smaller at 1:10. Experience has shown that many brokers nowadays also have the option of trading individual stocks as CFDs. You can also use a lever for this (1: 5).
To be able to trade CFDs, one must open an account with a Online trading UK. With most providers, this process only takes a few minutes these days. In addition, € 100 or € 200 are often enough to open an account. When choosing a broker, there are several things that should be important as a trader. For example, the trading conditions are important. The costs and fees that can arise when trading can be divided into three groups: costs that arise with each individual trade, fees for deposits and withdrawals as well as other costs and fees. The costs mentioned first are particularly important here.
As a trader, you should also value a good trading platform. Because you often spend several hours every day analyzing the charts in order to find entry into profitable trades. In this activity you should be supported as well as possible by your trading software. In addition, it speaks for a broker if he helps his customers to learn how to trade with CFDs. Trading videos and webinars are useful here.
To try out trading without risk, it is a good idea to open a free demo account. You don’t trade on it with real money, rather the CFD broker provides you with a virtual credit. This can be used to train trading with Fx Brokers. For example, a demo account can also be used to test trading with various financial instruments (e.g. DAX and Euro / US dollar). The demo phase usually lasts 30 days, but it can usually be extended without problems if necessary. To find a good broker, it is advisable to use a broker.