Despite CFDs (contracts for difference) being a relatively new financial instrument, it has become increasingly popular, offering a cost-effective way to traditional stock trading.
CFDs are financial derivative products, similar to options and futures. CFD is a contract between two parties to exchange the difference between the entry and exit price of a position, based on underlying price movement. Therefore, it’s worth noting that the trader is not entitled to the ownership of the underlying asset when trading CFD products.
The CFD market encompasses a broad range of tradeable products globally, such as Forex (foreign exchange trading), shares, commodities, indices and cryptocurrencies.
Easy access from desktop or mobile trading platforms such as MetaTrader 4 (MT4) and MetaTrader 5 (MT5) enables traders to capitalize on the market opportunities at any time and anywhere. CFDs trading also grants traders the ability to short sell a certain asset. Traditional share trading requires the trader to borrow stocks from a broker in order to first sell the share, and later buy back at a lower price and return to the broker with a profit.
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Trading Stock CFDs as a Pro:
In a professional approach, a comprehensive trading plan is employed when trading stock CFDs. Market selection – also known as a top-down and bottom-up analysis is employed.
A top-down approach involves analyzing the macroeconomy outlook, including key economic data and indicators such as geopolitical stance and GDP. Following a macro outlook, industries and sectors are identified and analyzed to determine the likelihood of outperformance or underperformance. As defined by the Global Industry Classification Standard (GICS), there are eleven key sectors including material, information technology, and financials, etc. For instance, the financials include investment and commercial banks, as well as insurance and super fund companies. Following the analysis of the key industries and sectors, individual stocks are then selected from industries with a positive outlook.
Conversely, the bottom-up analysis begins with stock selections based on earnings, cashflows, and price behaviour. The method combines relative strength analysis, which informs traders on which stocks are outperforming or underperforming relative to the market. Relative strength generally uses competitor analysis and ratio method as a foundation for the method.
Zero Markets provide a variety of account types suitable for all types of traders including ECN Account (Super Zero Account), Standard Account, Islamic Account, PAM/MAM, and Pro Trader Account. Start trading with the best-regulated CFD broker – Zero Markets. Enjoy competitive pricing and tight spreads starting from 0.0 pips across more than 60 tradable instruments.
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