How do you make money with CFDs?
In simple terms, money is made trading CFDs (Contracts for Difference) when you close out a Contract at a higher price (or lower price if you are shorting the contract, see this article on shorting CFDs) than you entered into the contract for. Leverage comes into effect here too, effectively multiplying the price difference in whichever direction the price has moved.
This is a gross simplification of the mechanics involved in how to make money trading CFDs. In reality, you’ll have to put a lot of thought into your trading strategy (see here for more information on CFD trading strategies), cash management and risk management when it comes to trading CFDs.
It’s definitely possible to make money trading CFDs. Bear in mind, however, that there is a high risk/reward payoff involved in trading CFDs. Because they are leveraged products, it is possible to both gain, or conversely lose money in a hurry. CFDs are normally used for short term speculation on the price movement of an underlying asset. It’s well worth gaining as much experience as you can on the typical price movements of underlying assets (for example of a commodity such as gold) before you take the plunge into CFDs with your own money.
If you’re starting out in Contracts for Difference as a financial trading instrument, it’s worth checking out if the CFD provider or platform you intend to use offers a demo account. A demo account is where a CFD Trading provider offers an account that you can use to simulate your actual trades using imaginary funds. This can give you a good feel for how CFD trading works and how to make money trading CFDs, effectively allowing you to ‘try before you buy’. Check out this article on one such provider that offers a demo account.
Learning how to make money trading CFDs can be a lucrative move if done well. As mentioned, if you’re starting out, absorb as much as possible about the market you intend to trade on. A demo account is a great way to learn the mechanics of CFD trading and gives you a way to test your strategies, cash and risk management methodologies.