Cfd Trading - Make Money By Following Market Fluctuations!

CFD trading is an Over the Counter (OTC) financial derivative; it helps traders assume

a financial position based on their contrasting expectations of price movements. CFD stands for Contract for Difference. Here, two parties - a buyer and seller - enter into a contract to pay the other the difference in value of the asset in trade between now and a future date. If you have sold the asset and the asset price falls, you make a profit net of transaction charges and if not, you have to pay the difference along with the commission.

As a trader, it is important to benefit from both a rising and a falling market. If you expect the markets to rise, you can 'go long' on the CFDs, which means you buy, and if you expect a fall in the market, you can 'go short' on the CFDs, in which case you sell. Day traders, banks and hedge funds are some of the main players in the CFD market.

Going Short in CFD Trading means:

* You believe the market will fall in the short term.

* You hope to buy back shares at a lower price to close your position.

In traditional cash-settled stock market investments, it is not possible to take direct advantage of falling markets.

Advantages of CFD Trading:

* You can trade in large quantities with a very little capital as only the margin money needs to be paid on the CFDs. So, you have the advantage of leverage. You can make huge profits by taking large positions in the market. Leverage offered could be 10 times or more than the initial capital invested, depending on the broker.

* You can access a host of different financial products from equities and bonds to commodities and currencies as well as a host of foreign markets.

* CFD Trading can be used to hedge as well as speculate on market movements.

* You are entitled to dividend payments if you go long and receive interest income if you go short.

* It is possible to trade even after markets close.

* It is not necessary to close your trade at any particular time; you can simply roll over your trade till an opportune time presents itself.

Precautions:

* Large positions means large risks and the scope for loss can be very high.

* It is important to make a comprehensive analysis of all factors that affect your trade, like economic indicators and political events before you trade.

* Be sure to use the limit and stop loss orders to ensure that you don't dig yourself too deep in case the markets do not follow your predictions.

* Take into account the commissions payable whether you go long or short.

* Study the regulations and laws of the region where trading is taking place.

* Ensure that you have the initial as well as the mark-to-market margin money on hand to avoid penalties and trade restrictions.

by: Catherine Mcdowell

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