Learn to trade CFDs
about A contract for difference (CFD) is a vehicle for speculating on the price of financial markets Open an account get trading, including forex, equity indices, commodities and shares.
What is a CFD?
More commonly known as derivatives, CFDs provide exposure to a market without the trader actually owning the underlying asset.
The CFDs also allow you to express a view on the future direction of a market. Effectively you’re entering into a contract with us to exchange the value between Open an account and get trading the opening price of an instrument, and where you ultimately chose to close in the future. The distance between your opening and closing price and your position size will determine the degree of profit or loss.
One of the most flexible trading vehicles
one of the CFDs offers you the ability to trade global markets whether they’re rising or Open an account get trading falling as you can go long or short. Unlike other financial instruments such as options, there isn’t an expiry date on cash-based CFD trades either Open an account and get trading.
What is leverage?
Open an account and get trading When is trading CFDs, you’ll be asked to put down a percentage of the full market value of the position, known as its exposure? This means you can achieve a sizeable market exposure with a small initial capital outlay, known as margin or deposit. It’s this idea of leverage, or gearing, that enables traders the opportunity to trade markets they simply wouldn’t otherwise have been able to.
Leverage means a small capital outlay can go further, but this can also result in increased swings in profit and loss within your portfolio. As with all financial products, if the market moves against you, you’ll lose money. But because CFD Open an account get trading trading involves leverage, there’s a much greater risk that you could lose substantially more than the capital you invested. Therefore, trading CFDs requires closer attention than unleveraged investments, such as physical shares.
Costs to trade
Open an account and get trading The cost to trade CFDs with us depends on the account type you choose. Find out more about our account types here.
The basic cost is what’s known as the spread, or the difference between the buy and sell price. There can be additional commission charges to consider too so compare accounts to find the right account for you depending on your trading needs. There’s an interest charge if you hold a position past the rollover point, which takes place a 5pm EST every day and is calculated basis the corresponding swap rate. This can be a consideration for many traders who hold sizeable positions, and they’ll often close out before this time. Find out more about swaps, spreads and commissions here.
Classic character traits of a CFD trader
Open an account and get trading CFD traders are diverse in their character traits, but our most successful clients are ambitious, passionate about financial markets and continued learning and have likely had experience trading or investing outside of derivatives before taking an interest in CFDs.
Naturally, our clients have a higher risk tolerance and understand that leverage can magnify both profit and loss. A successful trader will have a strong consideration and appreciation for managing risk. They like to trade methodically, either through automated Expert Advisors (or EAs), technical or price action analysis or through more fundamental considerations.
Due to the high levels of leverage, CFD traders tend to hold positions for shorter timeframes, which requires increased oversight of positions and the portfolio.
Open an account and get trading Because CFDs are leveraged products, Open an account get trading it’s possible for you to either gain or loses much larger amounts compared to your initial capital outlay, and your losses can exceed your deposits.
For this reason, risk management is a core consideration for all successful CFD traders, and we recommend you watch one of our many webinars on the subject of managing risk to help you harness this discipline. We also offer a range of stop-loss orders that will close your trade at a specific level. Find out more about risk management.
Discover more on a demo account
Ready to trade?
Open an account and get tradingIt’s quick and easy to get started – even with a small deposit. Apply in minutes with our simple application process.
What are the potential risk of EA trading?
Open an account and get trading As per all trading, there are risks associated with using to trade for you. We outline some of them below for you.
- The market could move against your positions, resulting in loss.
- A disconnect from your internet source may result in the EA ceasing to function, and therefore unable to manage your positions autonomously.
- Your EA may not be coded for every different scenario, and may act differently in certain circumstances to the way you expected.
- The EA may have errors or bugs in its code. It may fail to work, or to work effectively if so.
- You may lose some control of your account if you are not monitoring the trades your algo is placing. Allowing an EA to trade without monitoring means you cannot control what it may do, outside of what is already coded into its logic.
- Your EA may not be able to react appropriately to unexpected events, such as errant quotes, price feed and liquidity issues, Open an account get tradingplatform updates, and black swan events (where a major, unexpected, severe market crash occurs).
- If you have purchased the algo from a developer, there is the possibility that the EA will not return the amount required to cover its initial cost, and may not prove to be profitable at all.
- Poor support may be provided from developers or traders that you have purchased the EA from.
How can I create an algorithm or trading robot for my strategy without coding knowledge?
If you have no coding experience or skills nor the time required to learn how to code, then there are options available for you. You could search for ready-made (off-the-shelf) expert advisors or algorithms where you pay simply for the software or executable file that you place on your platform. Although these services are not provided by Pepperstone, on MT4 or 5 these can be found here, and for cTrader users, Open an account get tradingthese can be found here.
However, an alternative exists if you’re a trader with a specific strategy in mind that you would like to have coded up as an algorithm to trade for you. Freelance developers and coders who specialize in the languages and software used by MT4, MT5, and cTrader can be hired for a fee to develop any number of indicators or expert advisors that you believe will result in a profitable strategy. Simply provide them with your criteria for the algorithm required and negotiate a payment for the final product.
The following services aren’t offered by Pepperstone, but on MT4 & MT5 you can head to the Freelance section of the MQL5.com site and request a job in either the MQL4 or MQL5 language, depending on which platform you are using. For cTrader users, you can head to the Jobs section of the cTrader website.