CFD Trading Strategies for New Traders Entering the Marketplace

LONDON, March 22, 2012 /PRNewswire/ --

CFD trading with City Index enables new traders looking to speculate on the price movements of over 12,000 markets the opportunity to pay only a small fraction of the underlying instrument's value.

This alternative to traditional dealing can potentially magnify your return on investment due to its low margin and high leverage feature.

However, remember that such features are a double edged sword; where while they can magnify your gains, they can equally magnify your losses, which could exceed your initial deposit.

Below, we provide an easy-to-digest overview of trading CFDs, whilst we explain how knowing your chosen market, as part of a comprehensive trading strategy, can help prepare you before you begin trading.

CFD Trading: Overview

A Contract for Difference (CFD) is an agreement between two parties to exchange the difference between the opening and closing price of a contract.  

As mentioned above, unlike in traditional forms of trading; traders can gain exposure to over 12,000 markets that they may not have had access to before, including shares, indices, currencies and commodities.

As a derivitives product, you can use CFDs to speculate on live market price movements without actually owning the underlying instrument on which your contract is based. More about this below.

In addition, traders can gain from a market regardless of its direction; meaning that whether the underlying market rises or falls, there is potential for profit.

For example, if you believe a market will fall, you may choose to go short and sell. By doing so, your profits will rise in line with any fall in that market's price. However, if you predict wrong and the market rises, you will net a loss for every point increase in its market price.

Alternatively, you may think a market is going to rise and you choose to go long and buy, or you could use a CFD to hedge your portfolio; offsetting any potential loss in value of your physical investments.

Above, we mentioned that CFDs are derivatives products; therefore, all trades are free from UK Stamp Duty. Though tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

Knowing Your Market

With so many markets available to trade, it is imperative to your trading success that you choose a market that you understand both fundamentally and technically.

In the long run, this knowledge will help you take a clearer view on the direction of possible price movements within your chosen market; guiding your price actions, i.e. whether you choose to go long and buy, or go short and sell.

Something as simple as keeping up-to-date with the financial news, share prices, stock market changes and company reporting dates, can affect your trading choices.

Summary

Through a City Index CFD trading account, traders both new and experienced can benefit from a range of features to help improve their trading experience.

It is important to remember that when trading CFDs, emotion can take over. Prepare for trading by creating a solid trading strategy, gain knowledge of your chosen market and practicing with a demo trading account.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, financial spread betting.