If you’re looking to trade CFDs effectively in Australia, there are a few things you need to know. First, CFD trading is a form of derivative trading that allows you to surmise the price movements of assets without owning them. You can take a position on whether you think the price of an asset will fluctuate without purchasing the asset itself.
One benefit of CFD trading is that it allows you to leverage your capital, meaning you can control a more significant position than trading with your funds alone. However, this also means that you may be magnifying your losses, so it’s essential to understand how leveraged trading works before getting started.
Another thing to remember when trading CFDs is that they are traded on margin, meaning you only have to put down some of the total value of your trade, with the rest being provided by the broker. For example, if you buy $10,000 worth of shares in a company, you might only need to front $1,000 of your own money if you’re trading on a 10% margin.
It can be helpful if you don’t have enough capital to purchase the asset outright. Still, it’s important to remember that your potential losses are magnified when trading on margin.
Choose a CFD broker
The first step to trading CFDs effectively is to choose a reputable broker. There are several things you should look for when choosing a broker, including:
- The size of the company and their financial stability
- The platform they offer and whether it’s suitable for your trading style
- The fees they charge
- The level of customer service they provide
Open an account and deposit funds
Once you’ve chosen a broker, you’ll need to open an account and deposit funds. Most brokers will require you to complete an online application form and provide some ID before allowing you to trade. Once you have opened an account, you can fund it using a debit or credit card, bank transfer, or e-wallet.
Choose the asset you want to trade
The next step is to choose the asset you want to trade. CFDs are available on various assets, including stocks, commodities, currencies, and indices. When choosing an asset to trade, it’s essential to consider the level of risk you’re comfortable with and your investment goals.
Decide whether you think the price will go up or down
Once you’ve chosen an asset to trade, you need to decide whether you think the price will go up or down; this is known as your “position.” If you think the asset price will rise, you’ll take a “long” position. If you think the price will decrease, you’ll take a “short” position.
Choose your trade size
Now that you’ve decided on your position, you need to choose your trade size. It is the number of CFDs you want to buy or sell. For example, if you want to buy 10,000 shares in a company, you would take a long position of 10,000 CFDs.
Choose your leverage
The next thing to think about is how much leverage you want to use. Leverage allows you to control a more significant position than the amount of money you have deposited into your account. For example, if you’re trading on 10:1 leverage, you can control a $10,000 trade with just $1,000 in your account.
While leverage can amplify your profits, it can also magnify your losses. So, it’s essential only to use as much leverage as you’re comfortable with and never risk more than you’re willing to lose.
Place your trade
Once you’ve chosen all the trade parameters, you’re ready to place your trade. You can do this by opening the trading platform provided by your broker and submitting your order. Your broker will then execute the trade on your behalf.
When placing a trade, you’ll need to choose an “entry” and “exit” price. The entry price is the price you want to buy or sell at, and the exit price is the price at which you want to close your position. If you’re taking a long position, you’ll want to choose a lower entry price than the current market price and a higher exit price. If you’re taking a short position, you’ll want to choose an entry price higher than the current market price and an exit price lower.
Click here to trade CFDs with Saxo Bank.