Before venturing into what are CFDs, first let’s take a quick look at the forex market.
How the forex market works
The forex market is the largest financial market in the world. It’s also the most active with a daily trading volume of approximately US$6.6 trillion, impacting global economies. The forex market is highly liquid due to the volume and frequency of daily trades. It is open 24/5, from Sunday, 5 pm EST, to Friday, 4 pm EST, and accessible online, across several time zones. Trades are opened and closed according to the time zones of some of the world’s busiest trading centres which include New York, Hong Kong, London, Tokyo, Frankfurt, Sydney and Singapore region.
Trades in the forex market are speculative. This means a trader can enter into Contracts for Differences (CFDs) on foreign currencies in anticipation that their value will go up and sell at a profit on a specific future date. Forex CDFs enable a trader to trade on the strength (or weakness) of one currency versus another.
What are CFDs (Contract for Differences)?
Contract for differences (CFDs) is financial derivatives through which traders can maximise profits from price fluctuations rather than owning an asset. CFDs are essentially contracts entered into between a buyer and a seller, in which a buyer agrees to pay the seller the difference between an asset’s current price and its value at the time of the agreement (when the trade closes).
What makes CFDs popular?
CFDs have become popular among traders for several different reasons. These include:
- Contracts for Differences can be used to trade a range of markets including forex, indices, shares, commodities and even crypto
- Traders can make a profit from price movements without having to take ownership of the underlying assets.
- CFDs typically offer large leverage. However, leverage does involve high risk. It can amplify profits as much as it can capital losses. This is why a risk management strategy is key to avoiding losing large sums of money.
- A trader can go short as well as long with CFDs.
- CFDs can also be used as a hedging tool to protect yourself against short-term market volatility.
- CFDs don’t have a fixed expiration date (unlike futures for instance) and they don’t depreciate over time.
Become a more strategic CFD trader with T4Trader
Forex trading is becoming increasingly popular across the globe. As a result, access to online resources to broaden one’s scope of knowledge has become quick and easy. Popular global forex broker T4Trade offers an extensive pool of insights through its T4Trade Academy. This includes e-books, webinars, seminars and video-on-demand. In addition, T4Trade also delivers informative blogs and articles, and a useful FAQ page which answers many of the questions that traders want to be answered.
Open a demo account to practice your trades
T4Trade has gained popularity among traders almost everywhere for several reasons. This includes flexible leverage, tight spreads, fast execution, speedy withdrawals and top-tier 24/5 multilingual client support. T4Trade also gives access to a wide range (300+) of financial instruments across 6 asset classes (forex, metals, futures, shares, indices and commodities).
To gain a better understanding of trading with T4Trade, consider opening a demo trading account on its MetaTrader 4 (MT4) platform. Key features of the demo trading account are:
- A risk-free trading environment in which to trade currency pairs, without using your capital.
- It typically mimics real market conditions, providing crucial insights into the complexities of trading in the forex space.
- New traders can practice different types of trades to acquire more skills and experience. Experienced traders can hone their existing expertise to maximise profits.
- A demo account can help you better understand how to use the MT4 platform. This includes placing orders, analysing price action, chart figures and support/resistance lines, testing leverage, etc.
- All levels of traders can test out different trading techniques or trading strategies.
- Traders can also access a variety of forex-related articles, current market news and geopolitical and financial insights.
To open a demo account is easy. Simply visit T4Trade’s website. Click on Open a Demo Account and complete the Open a Demo Forex Account for Free form. Start trading using virtual money.
Opening a live trading account
Once you’ve gained the knowledge you need to start trading live, consider opening a live T4Trade trading account. The type of account you open should suit your tolerance for risk and style of trading. T4Trade offers multiple accounts with various spreads and conditions so you can choose one best suited to your trading objectives. This includes Standard, Premium, Privilege and Cent accounts with which you can access CFDs on forex, metals, indices, commodities, futures and shares.
Forex trading comes with significant risks due to high volatility. To reduce the risk of losing all your capital, having an effective risk management plan is key. A plan of this sort should incorporate stop and limit orders to protect your funds. Other factors to consider when creating a risk management strategy:
- Having a very good understanding of leverage. This is vital because if leverage is not handled with vigilance, the risk of incurring large losses is limitless.
- A thorough understanding of technical and fundamental analysis is also very important. This includes knowing how to read charts and market data. A lack of experience in this regard can negatively impact trades.
- Creating a plan that works for you. Establish how risk diverse you are and factor this into your risk management plan. Ensure the trading strategies you use align with your tolerance for risk to avoid unanticipated losses.
Disclaimer: This material is for general informational & educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked, in this communication.