How to Execute a CFD Trade

Here is a guide what to expect when setting up a CFD account and the things you can do to effectively manage your CFD trades.

Register an account

Select a CFD (contract for difference) trading broker, then register for an account before you start trading. The details you need to provide includes:

NameEmail Address
AddressDate of Birth
Telephone/mobile numberIdentification, e.g. passport number

You may also be required to answer the following questions:

  • How much experience do you have in trading?
  • How much knowledge do you have regarding trading?
  • How often do you trade?

Just indicate zero or none for each question if you have never traded before.

Add money to invest

Before you can open a position, or make a trade, you need to add cash to your CFD account.

Every trade uses only a small percentage of your funds when you open a position.

All CFD trades demand you to put down a deposit, also known as the margin, to help satisfy any losses on your trade.

Choose where to trade

You can trade CFDs in various markets, including:

  • Equities: e.g., Barclays, Tesco, Vodafone, and BT Group
  • Indices: e.g., Wall Street. US Tech 100, and FTSE 100
  • Commodities: e.g., silver, gold, gas, oil, wheat, sugar, and oats
  • Foreign Exchange (FX): e.g., US dollar/Canadian dollar and euro/Japanese yen

How can you choose?

Many CFD platforms provide you the option of checking the previous performance of a market before you place your bid. However, You can also look at:

  • News: Updates on economic impacts that could have an effect on your trade from news feeds worldwide.
  • Performance charts: Displays how a market has performed, from the last year based on daily readings, for example, (although this does not guarantee future success).
  • Market Information: Explains how much you can trade and other information, including the cost of any commission charges.

Make a trade

To make a trade, decide whether to go short or long on a position and the amount you want to trade.

The margin depends on the trade. You normally need a greater margin for riskier investments.

CFD trades which have a greater margin could cause you to lose a huge percentage of your money, but also have the potential to earn you a large profit.

CFD trading tools

Instead of constantly watching your trades, you can make use of CFD trading tools to help you manage your trades, for example:

  • Limit order: Once your trade approaches a certain value that displays the amount of profit that you are happy to take, this closes your position.
  • Stop loss: To dodge a huge loss, determine a value for your position to close, so your losses are only as much as you are prepared to lose.

Here is an example of how a stop loss works:

You open a trade worth 6801 on the FTSE 100,
You think the value will increase, so you go long (buy)
In case the market goes against you, you choose a stop loss at 6791
If the value decreases sharply to 6780, your position still closes at 6791, limiting your losses

Here is an example of how a limit order works:

You open a trade worth 6801 on the FTSE 100,
You think the value will increase, so you go long (buy) and pick a limit order at 6806
If the value increases to 6806, your position will close and you will earn a profit

Check your trade

Every CFD platform gives you tools to assist you in managing your CFD trades, meaning that you do not need to keep watching the performance of your trades.

To avoid big losses, make sensible trades, for example, avoid investing more because you are losing money on another trade.

Your CFD platform allows you see all of your open trades, giving you easy access to them while they remain active.

Close your trade

You can close a trade anytime, even if you have set a limit order or stop loss on it.

Once you are ready, go to where your platform enumerates your active trades then click on them to choose to close them.

You are responsible for any trades you perform, so you must understand the market you invest in if you want to increase your chances of earning a profit.

See also: What is CFD Trading