Created by a trader, for traders, as well as novices, TradeDirect365 is not only a fair & effective platform for everyone, but also Australia’s best value online CFD and Forex provider.
**When you sign up online, type: MAT CLARKE,
in the “Where did you hear about us?” area to ensure you get the current special on offer.
www.tradedirect365.com.au
(Please note: this particular post is for beginner traders. It's the reason I do not use trading terms and instead use words that regular people use in everyday life. However, I am going to explain some words, such as: position, long, short, etc., although at the bottom of the post so the beginners will also have that knowledge in their brains)
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First, what are CFDs?
Contract
For
Difference
That tells you barely anything, I know.
So here is more: a contract of difference is first or all a contract.
You already understood that part, I know.
It's actually a contract between you and the online CFD provider. This means when you are trading CFDs (shares) or currencies online, you are establishing a contract that allows you to benefit from your trade either going up or down (depending on if you decided to trade against the share price going up, or down).
If you decide incorrectly on the share price going up or down, then the value of your trade goes down (you lose money).
Decide correctly and the value of your share goes up (you make money).
Of course you need to close (end) that particular trade to collect your earnings ( if the value of your trade climbed, of course).
In a very simple explanation, you aren't trading shares, if you want to get technical, you are trading the difference between the value of the share from the time you initiated (opened) the trade, to the time you end (close) it.
It sounds like regular trading online, almost.
So, here's more to explain, so you get an even better idea:
Because you are trading only on the contract of difference, it means you do not need to invest the full amount to get the full benefit (or loss, depending on if your trade is profitable). This fancy ability is called leveraging. You've heard of the term before? Here's a dictionary definition:
Using borrowed capital for (an investment), expecting the profits made to be greater than the interest payable.
Basically it means that you are using someone else's money (borrowing it) to make an investment and potentially make money from it.
This is great if you don't regularly role around on large money piles, but want to create some money piles of your own and need someone to put up some of the funds.
Any other benefits to trading CFDs?
Well, yes, actually.
As I partially mentioned earlier, you can actually trade against, or for, the value of something. When you first go to do this online you'll see that you can either buy or sell. This will seem strange at first, considering you are able to sell shares that you don't actually have.
Instead of looking at it that way, you look at it as if you want to predict what will will happen with a certain shares or currencies. For example, you believe that shares will rise, so you "buy" shares, then sell them when they go up, for a profit. When you sell those shares, it is called "closing your position". The "position" is basically the trade you initiated. It's one of those terms traders use, so you may as well get used to it now.
Or, if you think certain shares/currencies will go down in value, you "sell" those shares (you don't have), and then "buy" them back again when the value of your share or currency goes down. That means you will be back to where you started with no shares/currencies against your account.
This procedure of beginning a trade, then ending it, is called, "closing your position".
As soon as you close off your trade that you initiated, then it is called "closing your position".
Oh, and to add to the confusion of trading terms all the cool kids are using; when you use the term "long position", then it means you have decided to invest money in shares/currencies going up.
If you have decided to invest in shares/currencies going down, then this is called a "short position."
Caution:
As mentioned earlier, when trading CFDs, you are investing in a trade that may go up or down. Please choose wisely before initiating any trade. Please also study up on shares and trading. Watch Youtube videos, read books, get a good idea on what shares and currencies you want to trade in.
Caution II: With CFDs you can trade without owning the underlying asset, and because you don’t need to buy the underlying asset, you can benefit from price movements with a fraction of the capital. CFDs are a leveraged product, so you trade with a margin where you only deposit a fraction of the full cost of the asset.
This is both beneficial as well as contains risk. You can make as much money as you can potentially lose. If, for example, you are using the Trade Direct 365 website and you buy a quantity of 2 "Spot Gold", it will display how much money you require within your account to make that trade. This is a helpful guide as to how much you could potentially make or lose. It is of course not the limit of how much you could make or lose, so please ensure you add a "STOP" limit on how much you are willing to lose if your trade turns unfavourably. The stop limit is the area below where you are making your trade. Check the Trade Direct 365 videos for more information.
Also, a good idea is to start with how much money you are willing to lose, then make your trade based on that, not the other way around. Otherwise, greed may cloud your judgment and your bank balance may end up at zero before you know it.
One last note for this blog: if you hold onto a "long position" overnight, then you will pay a small amount of interest. For the exact amount you can check the Trade Direct 365 website under "Get Started" "Market Information", then scroll down to page four.
On the plus side, if you hold onto a "short position" overnight, then in most situations you will be paid a small amount of interest.
If you're unsure, you can of course get in touch with Trade Direct 365.
Created by a trader, for traders, as well as novices, TradeDirect365 is not only a fair & effective platform for everyone, but also Australia’s best value online CFD and Forex provider.
**When you sign up online, type: MAT CLARKE,
in the “Where did you hear about us?” area to ensure you get the current special on offer.
www.tradedirect365.com.au
