Financial markets have never been so affordable as they are today. For two years, the health recommendations linked to the Covid-19 pandemic have had an unexpected effect on stock market transactions, since the number of online traders has increased. This influx is mainly due to a mass cessation of professional activities, to a search for “easier” income. While online trading has become easier, trading CFDs (Contract for difference) still requires certain precautions.

CFDS, WHAT ARE THEY EXACTLY?

Contracts for Difference or Contracts for Difference, called CFDs, are financial products that allow you to bet on the upward or downward trend of a particular stock market asset, but without ever owning it. The transaction between the buyer and the seller is not made on the asset itself, but on the difference between the value of the underlying at time T, and its value at the time of the sale. In the case of CFDs, the buyer bets on the rise of the underlying asset, the seller bets on its fall, with the underlying asset generally moving like the CFD. At market close, seller and buyer see if they have lost or gained money on the difference between the buy price and the sell price of the CFD.

LEVERAGE AND CFDS

Most of the time, CFDs are used with leverage. The leverage effect makes it possible to multiply the gains, but also the losses. If you take a leverage of 30 for 100 euros, for example, you have a leverage of 3,000 euros. If you win, you win the 3,000 euros and you pay back the bet to the investor (the broker), if you lose, you have to pay back the 3,000 euros! This leverage, when trading CFDs, is very dangerous and should be handled with care. Moreover, since 2018, restrictions have appeared in France for the leverage effect applied to the marketing of CFDs for individuals: It is limited to 30 for currencies on the Forex market, to 2 for crypto-currencies and 5 for equities, in order to avoid critical situations (over-indebtedness, bankruptcy, etc.).

HOW TO TRADE CFDS SAFELY?

Above all, trading CFDs is especially recommended for experienced traders with a perfect knowledge of the financial markets and the underlying CFDs. If you are tempted to invest in CFDs, it is always better to educate yourself so as not to fall into dangerous financial situations. For this, you can go to the  AvaTrade CFD Stock Exchange website. This online broker, with a high rate of regulation, informs, advises and supports its users by offering them more than 1000 tools (tables, statistics, real-time monitoring, economic information, robot trading, copy trading, etc.) so as to make them run as little risk as possible on the financial markets. This online trading site allows you to test your strategies on short-term CFDs (day trading) via a free demo account to verify that you are not risking anything financially.

When you start, manage your emotions, because stress is a very bad adviser. If you are subject to anxiety, choose trading robots or automatic trading by programming your trading parameters, this will save you from spending hours in anxiety and perhaps making unthoughtful operations that can prove fatal. If you want to trade with leverage, set up a stop loss: this is an acceptable loss limit that is fixed and will not be exceeded. Trading CFDs is possible thanks to certified and controlled online broker trading sites, but if the gains are phenomenal, the losses can be too. Always take the time to educate yourself on CFDs before trading online.