If you’re looking to speculate on the price of stocks without owning them, then CFDs are a type of derivative that may be right for you. When you trade stock CFDs, you are effectively betting on the direction of the underlying asset’s price movement. If you think the stock price will rise, can buy (go long). If you think the price will fall, you sell (go short).
With stock CFDs, you can trade multiple stocks in one go – including some of the largest and smallest on the market. You can also trade ETF CFDs, so that you can speculate on the price movements of a bundle of stocks without owning any. And because CFDs can be traded on leverage, you only have to put down a small deposit at the outset when trading.
Find a reputable broker
Before you can trade stock CFDs, you’ll need to find a reputable broker. Look for one that offers a user-friendly trading platform, low and transparent fees, and good customer support. You’ll also need to make sure the broker offers the kind of stock CFDs you want to trade.
You can look at https://www.home.saxo/en-sg/products/cfds for an array of CFDs to trade, and you sign up for an account on the spot.
Open and fund your account
The first step you need to do when you have found a broker is to open an account. Brokers – especially larger ones – have account types that fit each investor’s needs. For example, they are likely to offer professional accounts for those who trade frequently and have qualifications. They may also offer VIP accounts for those who deal in large trades. Then you have Classic or Standard accounts for the everyday investor. Verify and fund your account according to the deposit required.
Choose your position
You can then select the CFD you want to trade and choose your position. If the market is bullish, you will buy. If the market is bearish, you will sell.
Most brokers will offer a variety of order types, which can help you control your risk exposure. For example, a stop-loss order automatically closes your position at a predetermined level if the market moves against you, limiting your losses.
Monitor the market
It’s essential to monitor the market closely. This way, you can make sure it’s going the way you want it to and enter and exit trades if necessary. Some brokers offer mobile apps, which can be handy for keeping an eye on your trade while you’re on the go. You can also set custom alerts sent to your email or phone when prices move beyond a certain level.
Purchase the contract
You will then need to purchase a contract and ensure that you set reasonable expiration dates for it. Take note of other elements, such as the premium you pay for a contract, the asset on which you are speculating, and the contract size.
Benefits of trading stock CFDs
There is an array of benefits associated with trading stock CFDs. They are as follows:
CFDs are flexible
CFDs are a versatile investment tool. They allow traders to find opportunities in bullish and bearish markets, set stop and limit orders, and trade on leverage.
CFDs have low costs
When you trade CFDs, you generally only must pay the spread – the difference between the buy and sell price. And because CFDs are traded on leverage, you only need to put down a small deposit – known as margin – to open a position.
CFDs are easy to access
Nowadays, it’s easy to trade CFDs almost anywhere – online and offline. With mobile trading, you will also be able to trade CFDs while on the go.
CFDs offer a variety of markets
When you trade CFDs, you’re not just limited to shares. You can also trade forex, indices, commodities, and more, giving you plenty of opportunities to find profitable trading opportunities.
Risks of trading stock CFDs
Nevertheless, there are certain risks that come with trading stock CFDs. They are as follows:
You can lose a lot of money
Stock prices can be highly volatile depending on the type of stock and the overall health of the economy, so they can rise and fall rapidly. This stock CFDs an investment with relative risk.
If the market moves against you, you could lose all or part of your deposit – known as a margin call. If you use leverage. There is also a possibility of losing more money than you have invested in the first place.
The markets may not move
Low liquidity may be another risk you must face. Though stock CFD traders do not have to worry about buying and selling the physical asset the way traditional stock traders would, there are fundamental problems with low liquidity. This includes price movements staying fairly similar for long periods, which can lead to smaller profits.
The bottom line
Stock CFDs can be a great way to dip your toes into trading. If you would like to get started, it is vital to contact a reputable broker. You should also understand that all forms of trading contain risks. Always trade responsibly, and never risk more money than you can afford to lose.