HOW DOES CFD TRADING WORK?
A trader’s profit or loss is calculated by the difference between the price he enters into a trade and the price he chooses to exit the position. It is to be noted that prices are always quoted with the selling price on the left and the buying price on the right.
How to trade CFDs
The following five steps are the key to CFD trading:
- Choose the financial instrument - A trader first needs to choose the financial instrument or asset that he wants to trade in, such as EUR/USD or S&P 500 index or Gold, etc. Amana Capital offers CFDs across a wide range of financial markets, like forex, indices, commodities, and shortly cryptocurrencies as well.
- Choose to buy or sell - It is the sole decision of the trader to either buy (go long) an asset or sell it (go short), depending on predictions of a rise or fall in prices respectively.
- Enter a trade size - The next step is to decide on the size of the trade. The value of one unit of CFD can vary depending on the instruments that have been chosen to trade, and on the broker.
- Manage your risk - A crucial part of trading in CFDs is to learn to manage the risks associated with it, the primary tool being the stop-loss orders.
- Monitor your position - After placing the trade, it is important to monitor the any open positions and make sure any stop orders or take-profit orders are in place and follow the real-time profit or loss. It is to be noted that losses can exceed the money of deposit with your broker because of the use of leverage.
- Close your position - If the trade is not automatically closed out as a result of a stop or take-profit orders being triggered, it is preferable to close the trade when the trader is ready.