Stock CFDs are one of the most popular instruments for Australian traders. They offer the opportunity to trade a wide range of underlying assets, including shares, indices, commodities and forex pairs. A stock CFD is a contract for difference that lets traders speculate on the price movements of shares without owning the underlying asset.
CFDs are an excellent way to wager on market movements without taking ownership of the underlying asset, which means that traders can take a long or short position to profit from rising or falling markets.
There are a few things that Australian traders need to know before they start trading stock CFDs. Click here to get more info.
Find a reputable CFD broker
The first step in trading stock CFDs is to find a reputable CFD broker. Several brokers offer CFD trading, and choosing one regulated by the Australian Securities and Investments Commission (ASIC) is essential.
It is also essential to ensure that the broker offers a good selection of underlying assets, affecting your ability to trade profitably.
Open a demo account
After finding a reputable broker, the next step is to open a demo account. It will allow you to test the platform and see how it works before you risk any real money.
A demo account will allow you to practice your trading strategies and get a market feel.
Deposit funds into your account
Once you have opened a demo account and are happy with the platform, you will need to deposit funds into your account to start trading.
Most brokers will accept various payment methods, including credit cards, bank transfers and e-wallets like PayPal.
It is important to remember that you will be investing real money when you start trading stock CFDs, so it is vital to only deposit an amount that you are comfortable with losing.
Select your underlying asset
The next step is selecting the underlying asset you want to trade. As mentioned earlier, stock CFDs allow you to trade a wide range of underlying assets, including shares, indices, commodities and Forex pairs.
It is essential to choose an asset that you are familiar with and understand the factors that can affect its price movements.
Choose your position
After selecting your underlying asset, you will need to choose whether you want to take a long or short position.
If you think the asset’s price will increase, you must take a long position. In contrast, if you think the price will fall, you must take a short position.
Set your stop loss and take profit levels
Before entering a trade, setting your stop loss and taking profit levels is essential.
A stop loss is an order automatically closing your trade at a specific price to limit your losses.
A take profit is an order automatically closing your trade at a specific price to lock in your profits.
Enter into the trade
After setting your stop loss and take-profit levels, you can enter into the trade by placing an order with your broker.
Most brokers will allow you to place a market or a pending order. A market order will be executed immediately at the current market price, while a pending order will be executed when the asset reaches a specific price.
Monitor your trade
Once you have entered into a trade, it is vital to monitor it closely to ensure it is going in the right direction.
You will need to keep an eye on the underlying asset’s price movements and ensure that your stop loss and take profit levels are still valid.
If the price moves in opposition to your prediction, you may need to adjust your stop loss level to limit your losses.
If the price moves in your favour, you may consider taking some profits off the table by closing part of your position.
Close your trade
When you are ready to close your trade, you must place an order with your broker. After executing your trade, your position will be closed, and you will either make a profit or a loss. Check out Saxo Bank to learn more.