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What is CFD Trading

Contracts for Differences (CFDs) are investment instruments created to permit traders the advantages of holding Forex, Shares, Indices, and Commodity positions without taking possession (or shorting) the actual underlying instrument. Traders enter into a contract with a CFD market maker/platform at a specific price, and the change between the contracted price and the price at which it is closed is settled in cash for profit or loss. The needles expense and delay of a physical delivery of shares, for example and their registration, and any holding/safe custody charges that come with having a broker are eliminated, which saves you time and money.

Note that in trading CFDs traders have the potential to lose all or part of the capital in open positions.

CFD trading has continually grown in volume since their introduction over a decade ago. While originally focused on tradeable positions in equities, advances in technology and popular demand motivated the rapid evolution of this form to proprietary derivative financial instruments spanning the whole range of asset classes.

How to trade Forex

Today, the CFD market mirrors the larger financial universe with Forex CFDs representing the largest component. Thus, forex signals and forex charts are of great interest to CFD traders. The enormous leverage (minimal margin) commonly available (up to 400:1) on forex trades and the absence of brokerage fees are key elements in the appeals of CFDs. However, their proprietary / non-tradable nature classifies them as a “swap” under the US 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act and thus non eligible to be issued to retail customers.

The similarity between CFDs and Forex continues to grow:

Forex signals — Increasingly, forex movement is influenced by central bank governors and their bureaucratic minions. The implications of monetary policy are manifested throughout the global economy, thus increasing the overlap.
Forex charts — The basic tool in how to trade forex, forex charts, are also essential in understanding price movement in the CFD markets. After all, to understand what is CFD trading, you need to master the rules of price determination. And here, charting is a key tool. Mapping two dimensional sequential representation of price movement over time is a time-tested method to visually represent underlying prices. While far from definitive, it helps the trader to avoid mistakes and to understand trends, an essential part of trading psychology.

Example:

You decide that there exists a significant liklihood that the British Pound (GBP) will increase in value relative to the Japanese Yen (JPY) in the near future. So, instead of purchasing GBP and selling JPY in open market from banks and incurring brokerage, account management, and commission fees or using other exchange-based derivative alternatives, like futures contracts or currency options, (both of which have expiration dates) you buy GBP / JPY CFDs on a CFD trading platform. Each movement of a pip, (as an example in the price of 184.20 JPY per GBP) generates a gain or loss as if you held the underlying instrument.

In learning how to trade forex we gain a greater understanding of what is CFD trading. Looking at both forex signals and forex charts is critical.

Getting Rich through Foreign Currency Trading

Though not easy by any means, it is actually possible to get rich through Foreign currency trading. This is because risk prevents opportunity from evaporating.

Profitable Foreign Currency Trading is Difficult, Not Impossible

People who are against all kinds of risk taking, usually speak bad about the currency market and criticize the industry as being too risky and downplaying those risks. This is not true however, all brokers and market analysts are legally required to disclose the risks, and they do so explicitly. Especially on the issues of leverage and excessive trading, as well as impulsive trading. Foreign currency trading is fact, this is how some investment banks make money, and this is how some of the industry critics’ actual pensions are grown over the years, through their pension and insurance funds. So it is not fair to criticize the forex industry and forex trading when your own pension or investment fund is involved and profits from it. As far as striking it rich in the forex industry, critics again fail to understand that just like every investment, forex comes with its own risks. Every endeavour where it is possible to profit, is so because it comes with risk. When risk disappears so does the opportunity. Which is why gold has disappeared in the world’s most accessible places, where once all gold prospectors went. But in the harsh environment of mountains and lakes around some places in the world, there is still plenty of gold left. Few dare to go and find that gold, but those who do, do make millions. It’s the same with forex, it is tough to make money but it is possible.

What is Forex Trading All about?

Without the global forex converter mechanism the world would be far worse off, and consumers around the world would be getting a worse price on everything they bought. Foreign currency trading in today’s electronic form, has helped make the world a smaller and more efficient place. A place where everybody can get a better price, as well as insurance against future price fluctuations. This includes the manufacturers of the cars that forex industry critics drive, as well as the oil industry which supplies fuel to their local gas stations. Global currency trading has also helped stabilize economies and industries around the world, thereby making the local job markets more secure. If instead countries still used the rather primitive gold standard to price their currencies, it would be impossible for many industrialize countries to have stable economies and at the same time produce and export cheap and competitive goods. All these goods would be very expensive because they would have to be priced according to how much gold there would be in the central bank’s vaults. But the free-floating forex market has made it possible to stay competitive, and at the same time have a strong economy.

The Risk of Misinterpreting Forex News

Forex news always appears deceptively simple to interpret, but the impact its has on the underlying currency pair is always almost impossible to figure out.

Forex News Creates Confusion

No matter how a trader chooses to trade the market, even through the best forex broker and trading strategy, confusion is always there. Forex trading is especially tough during forex news release times where volatility creates all sorts of traps. News and economic reports in particular, are very hard to interpret, and as a result the market always tends to move in all kinds of ways during those release times. This is because all other traders themselves find it hard to interpret the data, and their increased trading activity during those times creates all this volatility. Trading the news is often promoted as an easy and popular thing to do, mostly by forex analysts and market commentary websites. But it is wise to treat the news with caution, and approach the market with an open mind on those days. Chances are that the majority of these analysis reports will be wrong, and the market will trade in all kinds of ways, so as to confuse as many traders as possible. As the market always goes from A to B in the most confusing way possible. Therefore it is not wise to expect smooth and predictable trends that everybody knows and talks about. In rare cases, a currency pair can move by 100s of pips in less than an hour, and it is not easy to figure out whether it will move even more in the same direction during the rest of the day, or it will reverse. It is that feeling of ‘missing out’ that finally fools day-traders and makes them lose. So there must be no sense of urgency to join any trend, at any time because this is impulse decision making. Good trading starts with not having any urges.

How to Stay Focused

Traders should forget all about attempting to interpret the news. Those involved in day trading should only trade confirmed forex signals several minutes after and only after the actual release time. Forex news is hard to use in a direct way, day traders however are far better off letting the market move as it wants, during the release times. Then look for reasons to fade the move right after the release times. The best trades occur when the market reverses following a strong in magnitude movement after news was released. Traders can use LSS pivot levels and other pivotal levels to figure out where the most likely reversal levels will be on that news day. Swing traders can use the same strategy, by taking into account the longer term trend. And only fade news-induced momentum when the trade is in line with the main daily trend. All other methods for trading the news may or may not work, but they are certainly much more risky, because there are more unknowns. It is one thing to fade a 100 pip move, where you know you can get out at 100 pips, and quite another not knowing where to get out. The market is so volatile at these times that even LSS pivot levels will be tested to the limit, and even the 3rd LSS pivots may be reached or falsely breached.

Finding the Best Forex Broker: Adding Value to Your Trading Experience

Finding the right forex broker is often overlooked by traders, because they are too focused on commission costs, while ignoring the larger important picture.

A Good Forex Broker is Always A Highly Liquid Broker!

Regardless if a forex broker is good or not, commission costs are hardly the issue! Low commission costs are often the tool of advertisers to promote not so good brokers. What really matters is the capability of the broker in question to handle fast trading, large size trading and generally foreign currency trading during hard to trade times. The global forex currency converter mechanism is peculiar, because it is easy to handle most of the time, and yet it may become fast moving, unpredictable and illiquid for brief periods of time. And these periods come without warning to the inexperienced trader, often sabotaging their otherwise successful methodology. Choosing a good broker can eliminate most of the issues that poor volatility creates. As long as it is a good broker, one which is well structured and can provide liquidity. This means that this broker can take your trade, no matter what the conditions of the market are. This is far more important than commission costs. Many penny wise – pound foolish traders think about commission costs all the time, but good liquidity is what enables the broker to take your trade at the best market price. This means enhanced profitability and smaller losses throughout the year.

Trading Smarter And without Excessive Stress

In order to learn how to trade forex not only profitably but also under low stress. Traders must focus on key factors such as liquidity, money management, and facing the fact that they are dealing with probabilities. Probability is an event of chance, and as the old adage goes chance favours the prepared minded. Probability as a chance cannot be predicted, but it can be handled properly, so as not to cause any serious problems. A good broker is like a good trader, one that has already handled tough market conditions well in the past, and is still around to do business. A good forex broker is not the one with the lowest commissions, nor the one having won magazine awards. And certainly not the one offering most deposit bonuses. A good broker is the right base upon which to base one’s trading and then look to improve trading as they see best. Each trader trades in a unique way, so generic advice and tips don;t have to be applied exactly as they taught. Through good trading conditions and the use of trading tools and tips, one can reduce trading related stress to a minimum. Stress is normal, as long as it doesn’t exceed the stress levels we all have for all things not related to trading. So that trading becomes second nature, an everyday thing that we have to worry about but not too much.

Trading through the Best Forex Trading Platform

Using the best forex trading platform offers risk control tools and embedded calculators. Which not only come in handy, but also help improve profitability!

What the Best Forex Trading Platform Can Do For Your Trading

Forex traders often struggle to maintain control and profitability in their trading. This is partly because of not using the best forex trading platform they deserve. They often find themselves trading CFD and other instruments while having the pressure of time against them. This is because various even simple trading tools such as a forex calculator may not be available on their platform, or because they are overwhelmed by a sense of risk. In order to gain the upper hand over market risk and stress, one has to have risk control tools available at their disposal. The most important are fast contingent order placing capability, which does require these calculators in order to avoid mistakes. LSS pivot calculators are also important from time to time, these make the task at hand much easier to handle, and avoid the risk of making a mistake. Calculators are embedded and all data are entered in parallel, as opposed to classic handheld calculators where usage is awkward and data is entered in serial mode. That is the best way to save time, and to be sure that the wrong number is entered, it can be corrected right way.

Trading is all about probability. Each trade comes with its own probability. And then it’s a matter of money management in order to combine all those individual probabilities together to make up a trading plan.

What is Forex Trading All about?

Forex trading is all about trading probabilities, no trade is guaranteed to be a winner! Therefore a trader’s total profitability at the end of each month boils down to overall probability of handling the individual probability of each trade. Using the best forex trading platform one can get, is a way to get the odds in their favour, and eliminate the chance of making many kinds of mistakes. As every trader should know, money management is important to achieving that monthly profitability. And yet many traders use poor money management, and generic methods for placing stop loss orders. Money management alone can improve a trading system beyond belief, as it can increase total profitability by orders of magnitude. This is because good money management methods use variable trading size, and through the power of compounding the effects become very significant. Traders need to be reminded that it’s a game of probabilities every day. And they should their best to figure out what factors to change, and what factors not to change at all. Finally, there has to be some discipline in trading, but not absolute discipline. The dynamic nature of the markets requires some fine tuning, some delicate balancing act between perfect discipline and no discipline at all. At some point in between one can trade in a somewhat rigid way and yet still be allowed to make minor adjustments.

Guide to Best Tools for Forex Charts

With the growth and development of foreign currency trading worldwide, largely through networks of forex brokers, the unique tool of forex charts has been authored and refined. Learning how to interpret forex charts is a basis for understanding what is forex trading, to maximize your trading experience. By maximizing this intuitive visual resource, you can make your foreign currency trading a more professional endeavor.

The Basics of Forex Charts

Up-to-date data — In order to be of value, forex charts must be current. The logic of charting is that past price movement has value in predicting future prices and that recent history is more significant than previous periods. So forex brokers have an incentive to provide their clients trying to understand “what is forex trading” with current forex charts.
Defining your forex charts timeframe — Market-determined prices, being freely determined by random stochastic processes, manifest behavior specific to them, apart from any larger secular trends and influences. Thus, the strategy for each trade will depend on the duration expectations held at its outset. And strategy is time-unit dependent: patterns and meaning in forex charts are functions of the units in which they are denominated. Whether the issue is a candlestick analysis or identifying in which forex charts pattern a price series is currently oscillating, the unit timeframe is of critical importance.
Practice your strategy — The essence of forex charts is identifying foreign currency trading price patterns with sufficient exactness and robustness that a profitable strategy can be devised. And while real-world conditions are unlikely to be exactly replicated by simulated or demonstration scenarios, practice sessions should precede any real trading attempts with a forex broker. To answer what is forex trading, you should practice on both past and present data to see if your understandings survive the reality test.
Learn new strategies and chart structures — The evolving nature of market movements requires that participants continually refine and reexamine their methodologies and understandings. The only constant is the presence of change. Still, no forex charts trading arsenal is complete without a mastery of the basic common tools:
- Candlestick representation — A bar on a candlestick chart shows the open, close, high and low prices for the selected period. The body of the candle shows the open and close prices where the wicks show the high and low prices.If the closing price is greater than the opening price of the previous candle, then the candlestick will be green. If otherwise, the closing price is less than the opening price of the previous candle, then the candlestick color will be red. Candlesticks simply make it easier to see if the trading period ended up or down and they also contain additional information.
- Fibonacci retracement indicators — These virtual thresholds are horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before market movements continue in the original direction.
- Utilize moving averages to gain longer term perspectives. Historical data is the essence of forex charts and employing averages is the single best use of data to understand what is forex trading.