Learn CFD trading: how to trade CFDs for a living

CFD trading

The financial world is popular with those looking for a new path to financial success and independence. As a result, many of these people eventually become traders, and it's here that the tough journey really begins. Being new to any type of trading, one should be willing to gain a full and thorough understanding of the subject. In this article we are going to look at CFDs in particular, and what we must stress from the very beginning is that this is not a get rich quick method of making money.

Let's begin by exploring what a CFD is. The difference between where a trade is entered and then exited is known as the Contract For Difference. More deeply, it is the tradable instrument that mirrors the moves of the asset underlying it. It allows for either profits or losses to be realised when the underlying asset moves in relation to the position taken - but the real underlying asset is actually never owned. Basically, it is a contract between the broker and the client. Trading CFDs has a number of advantages which has increased their popularity in recent years. For this reason, we have prepared this article to assist you in learning how to trade CFDs for a living.

The pros and cons of CFD trading

The first task is to define whether CFDs are suitable for you as an investor, based on the advantages and drawbacks. Let's start off with the positive aspects.

To begin with, CFDs provide considerably higher leverage than conventional trading. Standard leverage in the CFD market starts as low as a 2% margin requirement. In fact, depending on the underlying asset, margin requirements might go up to 20%. There is a direct proportion - lower margin requirements mean less capital outlay for the CFD trader, and greater potential returns in the end. Of course this also means that an enlarged leverage may also magnify losses. Therefore, you must how learn to trade CFDs properly.

Free Forex and CFD trading education

The next plus is that you can access the global market from one platform. Most CFD brokers offer products that cover the world's main markets. This means that CFD traders can, without any additional effort, trade any open market from their broker's platform.

Another advantage is that there are no shorting rules or borrowing stock. Certain markets have rules that forbid shorting at certain times, and the trader is required to borrow the instrument prior to shorting, or have various margin requirements for shorting as opposed to being long. In addition, the CFD market generally is deprived of short selling rules. Therefore, an instrument can be shorted at any time, and since there is no ownership of the underlying asset, there is no borrowing or shorting cost at all.

Next in our learn CFD trading guide, is that trades can be professionally executed with no fees. CFD brokers offer many of the same order types as traditional brokers. They include stops, limits and also contingent orders, such as 'If Done' and 'One Cancels the Other'. Some CFD brokers even offer guaranteed stops. Brokers that offer guarantee stops will either charge a fee for this service, or achieve revenue in some other way. There are very few fees, if any, that are charged for trading a CFD. A lot of brokers do not charge commissions or fees of any type to enter or exit a trade. Ideally, the broker makes their money by making the trader pay a spread. In order to purchase, a trader must pay the ask price, and to sell, the trader must consequently take the bid price. As a result, depending on the volatility of the underlying asset, this spread might be small or large, though most of the time it will be a fixed spread.

We should also mention that there are no day trading requirements. Certain markets demand minimum amounts of capital to day trade, or place certain limits on the amount of day trades that can be performed within particular accounts. However, when it comes to the subject of how to trade CFDs, you'll find that the Contract For Difference market is not bound by these limits and traders can day trade however they want to. Accounts can frequently be opened for as little as $1,000, although $2,000 and $5,000 are the typical minimum deposit requirements.

The last advantage is that there is a wide range of trading options. These include: stock, treasury, index, currency and commodity CFDs. Even sector CFDs have emerged. Therefore, it's not only stock traders that can benefit. Traders of various financial vehicles can look to CFDs as an alternative.

Let's take a look at some of the pitfalls of CFDs. The first one - having to pay the spread on entries and exits, removes the potential to benefit from small movements. In turn, the spread also diminishes winning trades and expands losses. Thus, whilst stocks expose the CFD trader to fees, more regulation, commissions and higher capital requirements, the CFD market has its own approach of cutting traders' profits by way of larger spreads. Knowing that, trading CFDs for dummies will not be problematic.

How to start trading CFDs and key rules to consider

Starting CFD trading isn't complicated. All you need to do is follow three steps to get started:

  • Open your trading account with a broker that seems to be trustworthy.
  • After opening an account, you must fund it with a fixed initial deposit.
  • Once you have chosen your trading platform, you may start your CFD trading journey.

Now we are going to provide you with some important rules of how to trade CFDs that you should follow.

The number one rule is to know your market. With more than 12,000 markets to trade, it is crucial that you select a market that you completely understand and know. Moreover, in the long run this knowledge will enable you to gain a clearer view on the particular direction of possible price moves within your selected market, eventually guiding your price actions. For example, whether you decide to go long and purchase, or conversely go short and sell. Something as simple as keeping up to date with financial news, the stock market and share prices changes, as well as company reporting dates, can substantially improve your trading decisions.

The second rule is to have realistic and attainable targets. Your trading goals should be deprived of illusions of pure luxury without a lot of hard work. They should be put in place before you start your trading plan. In turn, this trading plan should provide you with a set of rules for you to use as a reference point when you start trading. In this list of rules, you should include the following:

  • Definite profit goals (i.e by day, month or even year).
  • Established size of the trade.
  • Maximum rate of losses you are ready to take.
  • Entry and exit point.

The last two rules of CFDs for dummies mentioned are imperative to managing your risk prudently. Those rules will affect where you place your limit orders, and most importantly your stop-loss orders.

And the last golden rule is to manage your risk. The primary tactic in managing your risk is to apply stop-losses to your CFD trading account. You can choose between a standard and guaranteed stop-loss order, with the latter proposing the greatest and strongest protection, particularly if gapping takes place in your selected market. Additionally, a guaranteed stop-loss is an order to close a position at a level predetermined by you.

Trade CFDs and Forex

Is it possible for CFD trading to replace your current job?

CFD trading can undoubtedly be very lucrative. It offers outstanding earnings even during a recession, with a flexible trading time, all in the comfort of your own home or any attractive location of your choice. This also implies that CFD traders are able to have a quality personal life. If you are hesitant about trading CFDs for a living, just look at how it can alter your lifestyle. There's no more getting up every morning to go into the same old job. CFD trading gives traders flexibility, so that they can choose when to trade and how long for.

There is the legitimate question of whether one can just leave their job for CFD trading. The answer is yes, if you have financial security. But for those who have mortgages and loans, you shouldn't rush to hand in your resignation in favour of CFD trading. CFD trading can give you financial freedom, but only by sticking to the rules and being patient. Even those who are financially secure have to stick to the rules to avoid unpleasant consequences.

One must be educated on the art of CFD trading. It is always advisable to gain a good and competent CFD trading education. It might be costly, but it is better to invest in a properly established CFD education, rather than risk potential losses later.

Another rule is to practice of what you have learnt. Constant practice will pay off. Spending just 20 to 30 minutes a day will help you master the basics, but it will take much longer to reach a professional standard than those who dedicate their time to studying. A trader has to be disciplined, even while using a demo account. This rule will undoubtedly determine the success of a CFD trader.


If you're considering CFD trading, you should decide whether this type of trading is suitable for you and your personality. If it is, you are advised to focus on learning CFD basics, practicing their application, before eventually earning money. There is no such thing as CFD trading wiki. CFD can only substitute your job if you are willing to invest a considerable amount of time and effort.

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