What Every Trader Must Know About CFDs and Digital Options

Since its early introduction in the market in early 2008, trading with digital options has fascinated thousands of investors and traders around the world. Unlike other forms of trading, binary options are seen to be an easy way to trade. In fact, you do not even have to get a special degree or license to start trading. If you are someone who wants to get involved in this type of industry but has totally zero knowledge of the stock market, this article is written for you. If you are a beginner in this industry, we will be providing you with ample information that you need to know regarding binary options trading and contracts for difference and both will benefit you as a trader.

The Basic of Basics: What exactly is Binary Options Trading?

It is of utmost importance that, in any industry you would like to be a part of, you have a great understanding of how it works. Such applies to binary options, which is an easy way to trade the fluctuating prices of various assets in the world financial market. The trade will involve you as the investor and, of course, a binary options broker. We will give you more information about this at a later time.

Trading with digital options will boil down to your ability and decision-making skills to predict whether the value or the price of your selected asset will rise in a specified timeframe. This is called the Call option. When you predict or think that the price of your chosen asset, on the other hand, will dive down in a specified time, then what you need is the other option: the Put option. This is the very reason why it is called binary options. You only have to make one out of two financial decisions. You are not burdened to come up with a decision based on many critical financial analyses.

Your broker, moreover, would offer you with a fixed return on your prediction. This is perfect because he or she is making you aware of how much or how little you should expect and get something in return if your prediction is correct. On the other side, this will also get you aware of how much or how little you are risking if your prediction is wrong. Your broker’s website for sure offers a demo account wherein you can get yourself familiar with how the trading works without risking anything. Nowadays, all of the good brokers out there will offer this feature, if not, do not go with them.

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The Basic of Basics: What exactly is Contracts for Difference? 

When CFDs or Contracts for Difference was first introduced in Australia in early 2002, traders found themselves to be in confusion since they had access to a lot of leverage but then trading costs were too low at that time. CFD, with its ever-growing popularity, is another type of trading, much like binary options that lets you speculate on the falling prices or its rising of ever-moving financial markets like commodities, shares, indices, treasuries, and currencies.

When trading with CDS, you do not have to sell or buy the underlying asset. You are only tasked to buy or sell some units for a specific instrument based on whether you predict the prices will either rise or fall. If your prediction is correct, you will be gaining multiples of the number of units you bought or sold. If your prediction is wrong, you will of course incur a loss.

This year, more and more traders have been wanting more freedom in products or elements to trade.  In this regard, CFD is at an advantage over stocks. Brokers like CMC, SaxoBank, and IG Markets now provide you with the freedom to have access in more than 9,000 instruments using one account. Some will only allow to access local markets. You are also free to access the global markets and trade anytime and anywhere you want, which is good for those who wish to take trading seriously.

How one becomes a better trader

Whether you decide to trade in CFDs or binary options, both would require you to be cunning in your ability to predict correctly. A good trader must know when to call it quits and when to go all in. Some would say to trust your gut. Learn from your mistakes, and vow never to repeat them. We have listed down some tips you should follow so you could become a great trader.

  • Planning Ahead – To become a better trader, you must know that a game plan is necessary to succeed and to ensure that everything is going to be smooth-sailing. When you plan ahead, you are already expecting the worst that could happen, so you are prepared to deal with whatever comes your way. Plan your trades accordingly, do your research at a local library or on the Internet. Plan accordingly and follow your game plan.
  • Always be on the know – Sure, by now you are aware of the fact that a lot of factors would affect the falling and rising of your chosen asset in the global financial market, and that is why it is truly important that you stay on top of it. Be updated. Start paying attention to your morning newspaper’s finance page. Go the extra mile and start a Twitter account so you could be aware of market trends and important financial news as they happen. Twitter has an option to notify you of important news that you wish to receive so you do not miss a single one. By having access to this type of information and knowledge, you will be able to make better decisions based on financial news.
  • Keeping track of your trades – To become a better trader, you should have a record of how poorly or how well you did in your previous trades. Keeping track of your trades in a journal will go a long way as it will let you identify the areas you should improve on and the areas you are good at. Your journal should contain the price, the date, what happened, and some other important trade notes.

Images by Lorenzo and Energepic under Public Domains CC0

Happy Trading,

About Marina Kuperman Villatoro

Marina Kuperman Villatoro CEO of The Trader Chick and has been day trading for years.

Day trading isn’t only a job.

It’s a lifestyle.

It’s a way of life and a transformational journey.

All you need is a trading plan, the right mindset, your laptop and the desire to work 2-3 hours a day so you can have the time to spend with your family, travel, have fun with your hobbies or simply indulge in the finer things in life (quilt free).

My main goal is to show how life transforming day trading is, even spiritual and to remove the stigma and fear that is wrapped around it.

I recommend by starting your journey with my FREE mini course – Simplifying Day Trading where I take you from Ground Zero to having confidence in understanding the markets.

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