Earlier, a CFD contract required a lot of time to start, and it was much more difficult to perform trading and develop your business. Luckily, it’s not like that anymore. Now, you can trade even using a smartphone regardless of your physical location. Though CFD is a common contract that can be created for commodities, you should be aware of how to trade in a safe way. So, read on for a detailed guide on starting a commodities CFD trading.
What Is a CFD?
CFD is a trading contract usually conducted between two parties. It is based on the idea of the cost movement. If the price of the commodity rises, you get some profit from this instrument. Contracts for difference allow traders to win from the price fluctuations without owning an asset.
Of course, there are some risks that all trading instruments face. You can reduce them by becoming more aware of how the trading actually works. Several platforms like Deltastock, IG, etc., offer demo accounts that imitate real trading so that you may train before making the first contract. The most common CFDs offer gold, forex, crude oil, and many other commodities. Nowadays, you can also trade cryptocurrencies.
How to Start Trading CFDs for Commodities?
You don’t need to be a professional trader to start commodities CFD trading for the first time, but you still should understand the risks and specifics of the market. So here are several steps you need to take.
1. Find a platform
Most platforms can work with one commodity or several ones at the same time. There are also versatile platforms for both beginners and advanced traders, like Investous.com. If you need some education, you will find it there.
It would be beneficial to try various platforms and decide which one fits you the most. If you find a reliable platform, you can minimize the risks and start trading without fear and doubt.
2. Choose the commodity
It is advisable to choose one commodity and work with it as monitoring the price movement of several products might be challenging. So, you will be at a higher risk.
First, you should analyze the market and see which commodity price is going up and down. Spend some time on the research, and then you will be ready to decide on the commodity to trade. Also, there are specialized platforms for particular products that offer more features for trading them.
3. Buying vs. selling
When making a CFD, there are two parties. You may buy the commodity or sell it. However, you should consider that these cases significantly differ. If you’re sure that the price will rise, you can buy the contract and get the profit when the cost increases. In case you believe the price is going down, you should sell a CFD. There are risks in both options, so it’s challenging to settle on a single strategy. Nevertheless, you can create a new CFD at any time.
4. How much do you want to trade?
Before you make a CFD, decide on the size of your investment. It can be as high as you can afford, though there are common margin requirements. It’s the minimum price that allows opening the trade. The requirements might vary according to the commodity type. The more you invest, the higher profit you can get. But be careful, if you don’t adhere to an efficient strategy, the risks increase.
5. Set the limits
Most platforms allow you to set the limit orders and stop loss. The first ones close the trade at a price that is higher than the present market level. It automatically saves your profit. The stop loss works quite the same, but it also protects you from the risks. When the price hits the risk level, it closes the trade. Therefore, it’s better to set these both features. The option to choose only one of them is also possible.
6. Monitor the market
The limit orders and stop losses will help you in trading for sure, but they can’t do the main work – monitoring and analyzing the market. You should do this not only to predict whether the price is going up or down. Following the market allows you to set your strategy. You will know when to buy or sell a CFD and which price to set. No beginner can create a perfect plan after the first day, so it requires time and effort.
Start Your CFDs Commodities Trading
You don’t have to be a professional to start a trading career. If you follow the above recommendations, it will be easier to understand how the market and CFDs work. Spend some time to create your strategy. Trading has free access nowadays, so you may get CFDs for commodities and develop in this field.