Contracts for Difference (CFDs) are advanced trading instruments that enable you to speculate on the fluctuating prices of various assets in highly volatile global financial markets. These assets encompass stocks, indexes, commodities, currencies, and government bonds.
However, it is crucial to remember that CFD trading does not involve actual ownership of the underlying asset; rather, it involves wagering on its price fluctuations and profiting from changes in the price.
Deriv Accounts Supporting CFD Trading
Deriv offers various account types catering to specific trading styles and experience levels. There are two options for CFD trading accounts: DMT5 (Deriv MetaTrader 5) and Deriv X.
Furthermore, under these, traders can register a Standard, Advanced, Synthetic Indices, Financial or Financial STP Account, depending on the trader’s region and the regulatory entity through which they register.
Both account categories offer traders a wide range of assets and leverage choices (find more about Deriv multiplier trading), enabling them to customize their trading according to risk tolerance and trading strategy.
Tradable Assets for CFDs on Deriv
Deriv provides CFDs on forex, commodities, and indices. Significant, minor, and exotic forex pairs, precious metals such as gold and silver, energy commodities such as oil and gas, and significant global indexes are all included.
Deriv has expanded its CFD range to include custom-made synthetic indices. These unique trading indices, available round-the-clock, closely replicate real market fluctuations and present varying levels of volatility.
Steps to Make a CFD Trade on Deriv Trader
Trading CFDs on Deriv Trader is a straightforward process. Here are the steps:
- Access your Deriv account by logging in. If you do not have an account, create one before proceeding.
- Choose between DMT5 or Deriv X as your preferred trading platform (in the Trader’s Hub)
- Select the specific asset for trading among the available CFD options that align with your location.
- Establish trade parameters such as size, leverage, stop loss, and take profit levels.
- Click ‘Buy’ if expecting a price rise or ‘Sell’ if anticipating a drop in the value of the chosen asset.
- Keep track of your ongoing trades and adjust when necessary.
- When ready to conclude the transaction, close the trade to reap profits or minimize losses.
The Importance of Risk Management in CFD Trading
With its potential for high returns, CFD trading carries significant risk due to leverage. Therefore, it is crucial to have a solid risk management strategy in place to protect your capital and ensure sustainable trading.
Always Set Stop Losses and Take Profit Levels
One of the key elements of risk management in CFD trading is the use of stop losses and take profit levels. A stop loss is a predetermined price level at which a losing trade will be closed to prevent further losses.
On the other hand, a take-profit level is a predetermined price at which a profitable trade will be closed to secure the gains.
Always use Leverage Wisely
CFD trading involves a double-edged sword known as leverage. This tool can potentially boost your gains and amplify your losses. It allows you to enter trades with more money than what sits in your account.
For example, when utilizing 1:100 leverage, a minimum deposit of $100 allows the trader to open a position worth $10,000.
However, while this is an advantage, unfavourable market movements will calculate losses based on the complete value of this position rather than solely considering your initial investment amount.
Regularly Review and Adapt Your Strategy
Evaluating and adapting your trading strategy regularly is a vital component of risk management in CFD trading. The financial markets are constantly evolving, making it essential to re-evaluate the effectiveness of techniques that were successful in the past.
To ensure continued success, consistently reviewing your trading outcomes and adjusting your approach is crucial.
Diversify Your CFD Portfolio
Diversification is yet another crucial component of risk management. By distributing your investments across various assets, you can lessen the detrimental effects of a single asset’s bad performance on your overall portfolio.
Participating in CFD trading for various assets, including currencies, commodities, indices, and even artificial indices, can help achieve diversification.
Only Risk a Small Percentage of Your Capital
Another significant approach to risk management involves allocating only a small fraction of your wealth in each transaction. It is recommended to adhere to a general guideline of not risking more than 1-2% of your trading capital on an individual deal.
This strategy guarantees that even if faced with consecutive unsuccessful deals, the overall reduction in trading capital remains moderate, enabling you to sustain participation for an extended period and potentially regain losses.
The Role of Market Analysis in CFD Trading
Successful CFD trading often necessitates a comprehensive market analysis. Two types of analyses, namely technical and fundamental analysis, prove valuable in making well-informed trading decisions and enhancing overall trading performance.
Technical Analysis in CFD Trading
Technical analysis entails reviewing price charts and predicting future price changes using numerous indicators. This type of analysis assumes that pricing patterns in the past tend to replicate themselves.
Furthermore, traders detect prospective trading opportunities using tools like trend lines, support and resistance levels, moving averages, and other indicators.
Find out how to use RSI on Deriv, or even MACD on Deriv.
Fundamental Analysis in CFD Trading
Contrarily, fundamental analysis involves studying economic news and events to predict future price changes. This includes economic indicators, news updates, and even political happenings.
For instance, a robust economic report may bolster the value of a nation’s currency, while political turmoil could cause its stock market to plummet.
Frequently Asked Questions
Are there any fees for CFD trading on Deriv?
Yes, there are fees for trading CFDs on Deriv. While Deriv does not charge any commission for CFD trades, if you keep your positions open overnight, there are spreads and overnight funding charges, also known as swap fees.
What is the minimum deposit for CFD trading on Deriv?
The minimum deposit for CFD trading on Deriv starts from $5 and will depend on the account type and the deposit method.
Can I trade CFDs on Deriv on a demo account?
Yes, Deriv offers demo accounts for both DMT5 and Deriv X platforms. This allows you to practice CFD trading without risking real money.