CFDs are Contracts for Difference, instruments used to move the prices of shares, government securities, indices, etc., in the market. CFDs are used at precise times in the market. For example, if you think that certain actions, in an already bullish context, could rise even more level, it's time to buy.
Of course, you won't sell immediately, but you'll wait for the upside you expect. The gain will be higher. If, on the other hand, in a bearish market situation, you have a product that you think will fall even more in value, it is time to sell. Of course, in both cases, a prediction of the wrong market trends would result in losses.
An interesting aspect of CFDs is that they are leveraged instruments, which also means that only a percentage of their value can be deposited to purchase the instruments. The most obvious suggestion to avoid disasters in case of losses is to quantify before depositing percentages what you have available to move. If the percentage is close to the value of your account total, leave it to lose. Make sure you are always covered in case of losses.
Contracts for Difference use leverage to increase profits. However, although this can be beneficial in the case of earnings, it can intuitively be very dangerous in the case of losses. By playing on certain levels, losses may exceed the initial payment and balance of your account. This dignifies entering new money into your account to cover losses. We therefore recommend that you take great care when making these types of transactions and make sure you understand the risks of investing and the general rules of CFDs in online trading.
As we know, the market can present two fundamental trends, the bullish and the bearish. In English the terms are to bull market, or bullish, in the case of the market with bullish tendency, and bear market, or bearish, in the opposite case or bearish tendency.
For those who know a little English, you will have identified the terms "bull" and "bear": this explains the numerous representations of the market with the two animals fighting each other. The bull pushes, that is why it represents the upward trend, while the bear's spurt goes down, that is why it represents the downward movement.
Understanding market trends is the first step for those who want to invest. To take advantage of the trend and earn. But besides understanding current trends, the desire of all analysts and investors is surely to predict what is going to happen. The benefits of being able to predict a change in trend would be enormous. Therefore, many theories and indices have been created to predict market trends.
Three elements must be considered when analyzing the market: volumes, price and size. By correctly evaluating these three elements, which differ greatly from one gold element to another, a high level of knowledge is reached regarding the market trend itself. Within this general framework, however, it is possible to find indicators that reveal, to those who can grasp, the changes in trends that will occur in the three elements mentioned above.
Indicators are elaborations of price values that serve to define the state of the market at that given moment. These indicators, also called oscillators, change with the changing attitude of market operators: emotions such as euphoria or pessimism have precise effects on prices, which can be captured by indicators.
Of course, the indicators are not 100% safe, but they provide a guiding direction; this implies that it is necessary, to have a clearer and more defined picture, to combine them with other systems.
These systems are:
As we have said many times, the risks through this financial instrument are higher than others. For this reason, it is good to deepen with examples the functioning of the CFD in online trading.
For example, let us assume that you are going to invest in the XX index. This is quoted at 15.99€/16.00. It seems a good deal to you, and so you decide to buy 1,000 CFDs because you think the market will go up and you think it can make a good profit. The initial margin of XX is 5%: excellent, you only need to deposit 5% of the value of the position: you need €800 obtained by (5% x (1,000 x €16.00). If you've seen us right, the price of the shares will, let's set it at €16.25/16.26. At this point, close the position satisfied and sell, earning a profit of 25 cents per share, for a total of 250 euros.
But maybe you were unlucky, you read the trend badly. The price of XX falls, and the value falls to 15.49/15.50. Result: You lost 51 cents per share, and you have a loss of 510 euros.
Apps for online trading are many, and it is difficult to find the ideal solution without wasting time with non-functional applications. So, we try to make it clear by recommending a range of trader applications to download and test directly with your strategies.
Investing online represents a risk that many Italians are still pale pale on. Certain of their work, expenses and earnings, most of us are unnaturally afraid to confront the world of trading. How can this be remedied? Today we recommend a series of options that ultimately concern a very clear password: simulation.
It is much easier to analyze some data through the reading of graphs than the discussion that can arise around simple numerical inputs. Through the graphs it will be possible to monitor information related to volumes and other technical indicators (they are displayed at the base of the graph characterizing the time axis). To give a concrete example, the bands of Bollinger are directly represented on the price graph.
Continue our journey around some of the best known advanced trading strategies. In this case, we will analyze Bull Spread, a technique that is usually used if you have the feeling that the market is taking on bullish traits.