CFD Trading
CFD Trading צילום: deposit photos

According to the doom and gloom merchants, the economy is about to crash or has indeed crashed already, but we just haven’t noticed yet.

And amongst the current financial circus players, we have the modern-day equivalent of the carnival barker – the CFD broker.

Or do we?

With silver tongues, these eloquent rogues call passersby to enter the tent and feast their eyes on the lady with the crystal ball. Come and hear what she says about the latest asset class that will make them a fortune.

But investment reality is a little different.

Who Are The CFD Brokers and What Do They Do?

CFD brokers offer investors the opportunity to enter a contract for difference (CFD) and act as the intermediary between the contracting parties.

Parties to the contract agree to pay opening and closing price differences of an asset or a market (yes, this gets complicated very quickly).

No one owns the physical asset. They only agree to buy or sell the other party the right to buy the underlying asset at a particular price.

Since you, as the investor, do not own the asset or product while trading, it enables you to speculate on the upward or downward movement of the asset's price.

CFD contracts predicated on prices dropping are known as short CFD’s or “short selling,” and CFD contracts where the prices are expected to go up are known as long CFD’s or “going long.”

CFD brokers make this process smooth and seamless thousands of times a day.

What Are They?

So, far from being “carnival barkers,” CFD brokers perform a vital role as the intermediary between traders and the market (a mediator, so-to-speak, between buyer and seller).

They provide a trading platform and necessary services to conduct trading.

An eToro review reveals that they provide a global online financial trading platform and multi-asset brokerage for investors who wish to enter this exciting market.

What Do CFD Brokers Do?

CFD brokers assist investors in buying a certain number of contracts on the market if they expect it to be a long CFD (rising) and sell them if they hope to become short CFDs (falling).

The change in the value of the investor’s position will reflect movements in the underlying market.

This is where leverage comes into play.

When we say CFD trading is leveraged, it means that investors or traders can use a small investment to leverage greater benefits from small price movements in the underlying asset.

This enables an investor to spread their capital further, hence leverage.

However, the profit and loss are calculated on the position's full size. This means that both profits and losses amplify the contract position, boosting your profits and losses.

When these contracts close, it’s possible to make a tidy profit or lose your entire investment.

Due to the high level of risk, it’s recommended that you pay attention to the leverage ratio and only trade well within your means.

Where Would You Go For Advice?

When choosing a broker, it is essential to consider whether you understand how CFDs work and whether you have the funds to take the high risk of losing your money.

The best way to get advice on which broker to choose would be to research multiple brokerages. Then decide for yourself who would be the best option.

What Sort of Software Would You Use?

CFD trading software is an integral part of any investor’s toolkit.

Trading software provides a gateway for investors to analyze the market and open and close positions. The interface enables transactions between CFD brokers and investors and allows access to market data.

Tried and tested examples include MetaTrader 5 (MT5) and MetaTrader 4 (MT4), with MT4 considered the most popular CFD trading software globally.

In Closing

CFD brokers fulfill an essential role in the financial markets and provide access to a ready market for experienced investors.

So, if you’re planning on trading CFD contracts on indices, shares, foreign currency pairs, cryptocurrencies, or commodities, a minimum deposit ranging from $100-$500 is all that is required to get in on the game.