Contracts for difference or CFDs are very comfortable financial instruments to operate in the foreign exchange or forex market. Here we will explain five simple steps to trade CFDs.
Something very important that you must take into account is to know well with which platform and with which company you are going to operate your CFDs; because they are not all the same.
Before going into the matter, let’s first see what CFDs are.
What are CFDs?
CFDs are derivative financial instruments created by a platform and whose underlying may be shares; foreign exchange; raw Materials; or stock indices. The larger the broker, the greater the investment possibilities.
In addition, it is convenient to look for a regulated broker and with a certain history in the market. This way we will avoid unpleasant surprises (fraud or scams) and we will have the peace of mind of knowing that we operate with a serious and consolidated company.
A good platform will also have its app to operate from anywhere in the world and that is also important today.
To operate with CFDs everything is very simple. First, we choose a market to trade (Currency, Indices, etc.). Secondly, we decide if we are going to establish a bullish (buy) or bearish (sell) position and on which underlying.
The third of the steps to trade CFDs is to select the investment amount. That is, how many CFDs we want to trade.
With this clear, fourthly we must establish the stop loss or loss limit that we want to assume before closing the position. And lastly, we just have to keep an eye on the position and close it when we feel the time is right.
An even easier system to trade ETFs.
ETFs or Exchange Traded Funds are listed investment funds and offer some advantages of shares -such as being able to be bought and sold in real time- at a very low cost. ETFs are a great tool for diversifying a portfolio because they do not require large outlays and allow, for example, open positions in several markets at the same time.
On the other hand, they are a very versatile instrument because they are listed in real time and you can enter and exit them during the entire session, just like stocks, something that traditional investment funds do not offer. Finally, ETFs are very transparent instruments thanks to the fact that they are constantly quoted.
Thus, to operate with ETFs, it is enough to decide the market in which to operate, the entry price and the desired amount to invest. As the entire session is in motion, the ETFs are followed as if they were shares and it is very easy to enter or exit the market in real time and at the prices that are of interest at all times.
The ETFs offer is very wide, although initially they were mainly used for hedging positions on stock indices. Today they also have a market in illiquid indices of, for example, little-traded raw materials or less popular sectors.
Finally, ETFs can distribute dividends (distribution ETFs) and allow positioning against the market (inverse ETFs) or with leverage (leveraged ETFs), although the latter entail a high risk and are not recommended for investors with little experience in the markets.
