Is CFD trading profitable?

Is CFD trading profitable?

A lot of people are asking us if CFD trading is profitable. This is a tough question to answer. Contracts for difference (CFDs) is a tool that allows you to make leverage trades, Whether or not this tool will help you depends on what you are trying to achieve and how you use the tools. CFDs allow you to make large profits from small variations in the markets. CFD trading can be very profitable if use them skillfully. CFD trading can also be hazardous and cause large losses if you do not know how to use this tool correctly. CFDs is a tool that can multiply your profit or losses. It all depends on how you use them.

You should not be asking if CFD trading can be profitable. The answer to this question is clear. CFD trading can be very profitable. The question you should be asking yourself is if you got the skill and discipline to be able to learn how to use CFDs correctly. It is not hard to learn, but most traders chose not to learn and end up losing money. 70-80 of all traders end up losing money.

The first thing you need to understand to be able to make money trading CFDs is to understand what they are and what they are not.

Table of Contents

CFDs are:

  • CFD is a powerful tool that allows day traders and other active traders to make large profits from market fluctuations during the day. CFDs can be based on a wide variety of different assets such as stocks, commodities, currencies and indices. You will never own the underlying asset if you buy a CFD.
  • CFD trading is contracts between you and the broker. There is no third party involved. You do not actually trade CFDs. What you are doing is entering into (buying) and closing (selling) contracts. The broker is always the second party in these contracts. Most honest CFD brokers will hedge their position and buy the underlying asset on the open market. Some brokers do not do this but these should be avoided. An honest CFD broker that hedge the position on the open market will make money from the spread. They will make the same profit regardless of whether you earn or lose money. An honest CFD broker will, therefore, always want to see you make money. If you make money, you will trade more, and they will earn more money. Most brokers will charge an overnight fee if you keep your CFD overnight. This is to cover the interest on the money they have tied up ny buying the asset on the open market.
  • CFDs is a tool that allows you to make leveraged trades; Leveraged trades allow you to make large profits from small market movement. The maximum leveraged allowed within the European Union is x30. An x30 CFD allows you to make (or lose) 30% on every percentage point the underlying assets gains or loses. The maximum allowed leverage can be higher in some countries. Some CFDs offer an x500 leverage. The higher the leverage, the more money you can make and or loses. Higher leverage equals higher risk.
  • CFDs are extremely high-risk financial instruments.
  • CFDs are illegal in the US and Canada. They are legal in Europe, Australia and many other countries.

CFDs are not

  • CFDs are not a quick, easy way to make money. It is not free money. It takes time and dedication to become a skilled trader. Once you are a skilled trader, then it takes time and dedication to stay informed about what is happening on the market. If you are ooking for an easy way to make money than CFDs are not for you. You will lose money. If you are willing to work hard to make a lot of money, then CFDs might be a good choice for you.
  • CFDs are not a financial instrument that you can use to invest money. CFDs are made to be bought and sold again the same day. You will need to pay a fee if you keep them overnight. If you are looking for a profitable way to invest your money, then CFDs are not for you. CFDs are only suitable for active traders that trade on a daily basis.
  • CFDs are not a good financial instrument to trade if you can not afford to lose the money you are trading with. CFD trading is extremely high risk, and you should never trade unless you can afford to lose the money. In some countries you can lose more money then you have invested. Always learn how much the theoretical max loss is in your country before you invest in CFDs. Some CFDs can generate unlimited losses.
  • CFDs are not profitable for 80% of all traders. Most people lose money. Do not become one of these people. Only invest in CFDs if you think you have what it takes to make money. Make sure to only trade using a demo account until you have learned to trade successfully.