Think of investing as a long-term, traditional and physical practice. You buy shares in a company using the full amount up front, you’re issued a share certificate, you receive dividends, and you sell after a significant period of time – months, or years.
Now think of trading as a shorter-term, more flexible alternative. You use CFDs (contracts for difference) to buy or sell any type of market without having to own the underlying asset. You don’t pay the full amount up front – you use leverage – and you hold these positions for days, or even hours.
Most CFDs markets are leveraged. Leverage means you get a larger market exposure with a relatively small initial deposit, because you ‘borrow’ the remainder from a broker (like us). In other words, your potential return on investment is significantly larger than in other forms of trading.
Leverage is also frequently referred to as margin. This is because the funds you need to open and maintain a position – known as the margin – is only a ‘marginal’ amount of the total trade size.
For example, a 10% margin requirement means that you have to deposit only 10% of the value of the trade you want to open, and the rest is covered by your CFD provider.
Of course, if the market goes against your position in either direction, you’ll incur a loss. The more contracts you open on your position, the more profit/loss you’ll make with each move in the market.
CFDs give you instant access to multiple asset classes under one platform, including:
There’s no need to go to different brokers or exchanges depending on what you’d like to trade. Everything is there, at your fingertips – all under the same powerful platform.
The important thing to remember about CFD trading and leverage is that it can magnify your losses as well as your profits. If prices move against you, you may be closed out of your position. So it’s important to understand how to manage your risk.
Here are some key elements of good money management:
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