CFD Trading Tips

Basic Points To Know When CFD Trading

There are some basic points you need to keep in mind when trading CFDs. These would help you in CFD trading to a great extent.

a) Insist on checking with the broker your CFD trading account type.

This is important as only when you are classified as a ‘private client’, you can be assured of the best services and there would be no hidden costs in the form of more spreads or commissions. Being a private client also would entitle you to better compensation as well as arbitration opportunities. It is not only new but even experienced clients who can make this request of being treated as ‘private clients’. It is again advisable not to accept ‘intermediate’ classification as that would mean you are an experienced CFD trader and the broker would not legally be obliged to provide you with the best execution facilities.

b) Be wary about any commission-free deals.

Ensure you know your actual cost of CFD trading deals and do not get taken in by claims of no commission being charged. The broker will ensure that you are being charged one way or the other and it is therefore necessary to check the interest rate being charged as well as the spread.

c) Do not treat the CFD trading product or deals as a substitute for managing your portfolio.

Remember that CFDs are priced based on the price of the underlying like a stock, commodity or currency. It is therefore not a very good hedging instrument if you are looking to take care of your entire portfolio. For this, you may look at futures or options trading that are not only effective but also cheaper.

CFD trading can however help you hedge an underlying that you wish to retain from a long term perspective. For instance, if a particular stock has show a good increase after the results of that company has been declared, you can short sell the CFD of that stock so that you can get the benefit of any fall in price while holding on to the actual stock. You would thus get the benefit of holding on to the stock in terms of dividends, bonuses, splits and so on and need not take a hasty decision of selling the stock to lock your profit upon a rise in its price. The above are just some of the CFD trading tips you must actively follow to ensure continued success with your CFD trading deals.

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