While the process of trading CFDs may seem shrouded in mystery it is actually quite simple. Below is a list of the seven things you should know before you start trading CFDs.
– How to open an account – Depositing and withdrawing funds – How safe is your money – Free brokerage, is that for real? – What is overnight financing? – Get paid to short sell – Bypass the uptick rule
First things first
1. First of all you will have to open an account with your preferred CFD broker. This involves completing an application form and providing basic information about your trading and experience.
2. When you deposit money it usually goes into a segregated trust account that is separate from the company’s day-to-day running of their business. This is not a requirement in all countries, but it is in Australia.
Money Flows In and Out
3. To fund your account you can deposit funds via electronic transfer, cheque or credit card. When funding via electronic transfer your funds will normally clear within 24 to 48 hours.
4. Hopefully you will soon be the position to withdraw funds from your CFD account as a result of your trading profits. Withdrawing funds is quite simple and the most common way to do this is to link a nominated bank account to your CFD trading account and submit a withdrawal form.
Free Brokerage, Is That True
5. Trading index CFDs are generally commission free. The reason CFD brokers allow you to trade index CFDs commission free is the fact that they have a spread on the index that you are trading.
6. The other reason CFD brokers are able to provide an index CFD commission free is that they charge an overnight financing rate which may be as high as the RBA rate plus or minus 4%. Another great advantage of trading CFDs is the fact that when you short sell you actually get paid interest for every day you hold the position overnight.
Uptick Rule Not Required
7. Fortunately the uptick rule does not apply to CFD trading or Forex trading and you’re able to open a short sell position irrespective of how the price of the stock you are tracking moves.
Make sure you fully understand these seven secrets before you start trading CFDs.