Attention all CFD traders.
Want to know how to avoid the pitfalls of trading CFDs?
One is the CFD trading system you've got. It should be a good one. Then next,
it's your CFD broker as well.
Well, see below on what
to look for in a broker for CFDs and see why it affects your trading.
Let's go through some of these points in more detail.
Their margin requirement:
Most CFD brokers' margin requirements are around 10% (usually from 5-20%),
thus offering around 10 to 1 leverage. This is a good amount of leverage which
makes the high profits from CFDs possible, when compared to stock and share
trading. Note however that some CFD brokers require a margin of 30-80%, varying
for each of their CFDs, so the leverage available is much more limited with
these brokers. So if leverage is important for you to use (which it is for most
of us), check the amount of leverage available.
What are the order types that are available to be placed...
With most CFD providers, you can place orders at anytime, that is, when the
market is either open or closed. So if you're working in the day, you can place
all your orders at night, including limit orders to enter a position, and don't
have to watch the prices at all during the day.
Some providers however only allow you to place entry orders during market hours.
So you'll have to be there during the market open.
In summary, the main points to consider are:
1. Their margin requirement.
2. Their one way commission.
3. The number of CFDs available to trade.
4. The number of CFDs that are shortable.
5. What are the order types that are available to be placed?
6. The interest charged for long overnight held positions, and paid for short
positions
7. Do their CFD prices exactly mirror the underlying stock price, or is the
spread widened?
New to these concepts, then click
here for CFD tutorials, and this list
of CFD providers
So now that you know these keys, keep them in mind when choosing a CFD broker
online, to ensure that you can trade your system as designed, and that your
profits are maximised!
There are more hints in part two of this
special report, on thecfdtrader.com website
and blog.