In the 21st century, CFDs, or contracts for difference, have become a revolutionary tool for internet trading. They make it much easier for anyone to enter the stock, commodities or indices markets.

What is a CFD?

A CFD is a trading instrument, under which one party pays the other the difference in price between the opening and closing of a transaction. Therefore, the subject of such a contract is only the price, the asset itself is not provided.

An important nuance: because the stock will not be transferred to your ownership within the CFD, no dividends will be paid. Therefore, a dividend strategy with CFDs is generally not possible.

On a CFD trading platform in Pakistan, you can trade any financial instrument including stocks, currencies, commodities and indices. CFDs simply allow the trader to speculate on changes in the price of an asset without buying it. The trader simply predicts whether the price will rise or fall. If the market changes exactly as the trader predicts, the trader locks in a profit. However, if it goes the other way, the trader can face much bigger losses than with conventional instruments.

How do I trade with CFDs?

A CFD trading platform is a great opportunity to earn with minimal risk, trades can be opened for minutes or years, earning an investment as in a direct asset exchange. A key advantage of CFD trading platforms is that they are accessible for a wide range of traders with small deposits.

Advantages of CFDs

  • Leverage - every company has different maximum leverage, but most offer up to 1:20 for trading such contracts. It opens up the possibility of high risky, but also super profitable trading.
  • Broad diversification - with CFDs you can trade several thousand assets from different countries with one broker, for example, American, European, Asian or other equities.
  • Hedging is the insurance against adverse price movements on the market. Usually hedging is done by entering into multi-directional transactions with homogeneous financial instruments (or those that are highly correlated to one another).
  • No restrictions on day trading and short positions - this refers to rules set by the exchange, as required by law, in certain cases.
  • No dividends and no asset in ownership - this significantly reduces the broker's commission.

Thus, CFDs have many nuances and features, which are positive for the traders. 

Best online trading
Best online trading

Disadvantages of CFDs

  • The interest you pay if you hold an open position overnight. Interest can be paid or received. On short positions, the interest will be deducted if it occurred during the CFD trading period.
  • Leverage provided. Trading with leverage allows you to open larger positions with a relatively low entry amount, i.e. generate more profit. However, misusing leverage can work against you if market conditions do not develop correctly. 

If you are not experienced in trading CFDs, it is best not to open a large position that will keep you awake at night. It is good practice to determine your loss level and place a stop loss. It will help you avoid a lot of stress.

Choose stocks for investment
Choose stocks for investment

You should act cautiously and wisely when trading on the CFD trading platform in Pakistan to get short term profits or as a hedge, and always with a proven broker who can guarantee a good investment performance.

Trading platform capabilities for CFD trading in Pakistan? 

Most trading is done through online terminals. Modern online platforms vary greatly in the completeness and exclusivity of the information provided: for technical analysis.

In contrast to fundamental analysis, which tries to estimate a security's worth based on business results such as sales and profits, technical analysis focuses on the study of price and volume. The technical analysis tools on the CFD trading platform in Pakistan, are used to examine how supply and demand for a security will affect changes in price, volume and implied volatility. 

In general, technical analysts on the CFD trading platform consider the following general types of trading indicators and charts.

Types of trading indicators: 

Moving averages. Usually calculated to determine the trend direction of a stock or to determine support and resistance levels. It is a trend following - or lagging - indicator as it is based on past prices.

Relative Strength Index (RSI). It is a momentum indicator used in technical analysis that measures the magnitude of recent price movements in order to gauge overbought or oversold conditions in the price of a stock or other asset. RSI is displayed as an oscillator (a line chart which moves between two extremes) and can have a value between 0 and 100.

MACD (moving average convergence-divergence). One of the most common tools that investors and traders use to determine trend changes is the holy grail of markets. The MACD measures a stock's momentum and can help investors identify changes in that momentum, which can give away price reversal points.

ADX Indicator. Used to quantify the strength of a trend. ADX calculations are based on the moving average of the price range expansion over a period of time. It is set to 14 bars by default, though other timeframes may also be used. 

Types of trading charts:

Candlestick chart. Invented in Japan, this is why the candles shown in this chart are called Japanese. Each candle in this chart has 4 components: high, low, opening price and closing price.

Line Chart. The simplest type of chart is the simple line which gives a quick indication of the price movement. The line is formed by combining the closing prices of the selected timeframe. As a result, you cannot see the highest price for the time period (timeframe) or the opening price on the line chart. However, the closing price is considered a more important indicator.

Bars. Bars are loved by western traders, and many strategies are oriented exactly to their use. The principle is the same as the candlesticks, but the visualization method is different. It is a bar chart, which displays exactly the same information as the candlestick chart. The only difference is in the display: the body of a bar is marked with horizontal notches, which, according to most people, looks less clear. 

The best CFD trading platform in Pakistan has all the necessary tools, the main purpose of which is to facilitate the trader's trading process.

Commodity trading
Commodity trading

The technical analysis on the CFD trading platform can be used to generate short term trading signals from various charting tools. This information helps traders to better analyse the overall assessment of value. Technical analysis can be used for any security with historical trading data. This includes stocks, futures, commodities, fixed income, currencies and other securities. 

How to make money trading CFDs in Pakistan? 

CFDs, negotiated with a broker, do not involve the delivery of a physical asset into their possession; in fact, they are a financial betting game where the price is the only object. Trading on a CFD trading platform is referred to as active trading. It is the buying and selling of securities based on short-term movements for the purpose of gaining profit from price movements on a short-term stock chart. Active traders believe that short-term movements and market trend fixing are what you can profit from.

There are various methods used to implement an active trading strategy, each with an appropriate market environment and risks inherent in the strategy. Here are the four most common active trading strategies and the built-in costs of each strategy.

Types of active trading

  • Day trading. The best known style of active trading. Represents a method of buying and selling securities within a single day. Positions are closed the same day they are opened and no position is held overnight.
  • Position trading. Some consider position trading a 'buy and hold' strategy rather than active trading. Position trading uses long-term charts, ranging from daily to monthly charts, in conjunction with other methods, to determine the trend of the current market direction. This type of trading can last from a few days to a few weeks, and sometimes longer, depending on the trend.

Trend traders look for consecutive higher or lower highs to determine the security's trend. Traders seek to profit from both upward and downward market movements. Trend traders seek to determine the direction of the market, but do not attempt to predict any price levels.

  • Swing Trading. When a trend breaks, the fundamentals of fundamental analysis usually come into play. These trading rules and algorithms are designed to determine when to buy and sell securities. While a swing trading algorithm does not have to be accurate and predict the peak or fall in price, it needs a market that is moving in one direction or another. A limited range or sideways market is a risk for swing traders.
  • Scalping. One of the fastest strategies used by active traders. The strategy usually works by creating a spread, or buying at the bid price and selling at the ask price, to get the difference between the two price points. Scalpers try to keep their positions short thereby reducing the risk associated with the strategy.

On the CFD trading platform, active traders can use one or more of the strategies mentioned above. However, before deciding to participate in these strategies, one should examine and consider the risks and costs associated with each strategy.

How to Start CFD Trading in Pakistan? 

On a CFD trading platform , you can trade stocks, indices, cryptocurrencies, currencies, bonds and many more. This is considered to be the biggest advantage of the CFD platform. If it turns out that the currency market is not doing so well, the traders in the CFD trading platform can quickly switch to stocks and then, if necessary, to commodities. It's a good way to diversify your portfolio.

The best CFD trading platform in Pakistan, will become more and more popular as it gives access to many markets, and you only need to have one single account with one broker.

To open an account with a broker, you need to provide your personal details (name, email address) and confirm the registration process. It is important to do this so that you always have access to the trading platform and the trading accounts opened on it. 

Registrating on the investing platform
Registrating on the investing platform

After the registration and confirmation of your account details, you can proceed to make a deposit to your approved trading account using one of the payment methods provided. You may do it by transferring money via bank card, wire transfer or e-wallet. Depending on the chosen method of funding, the money will be received from 5 minutes to 5 days.

Deposit replenishment options
Deposit replenishment options

When opening a trade, a trader can turn on the leverage, which means that his trade will grow in size. This can mean big profits or much bigger losses. It is generally not recommended for beginners unless they are absolutely sure they know what they are doing. Most CFD trading platform  instruments have a fixed leverage rating. For example: FX - up to 1:1000 Stocks - around 1:50 Commodities - around 1:50 Cryptocurrencies - around 1:2.

How to open account
How to open account

After registering you will have access to a demo account. The demo account has the same basic parameters and features as the regular one. You can trade on this account with virtual money. A demo account gives you a chance to get priceless experience in trading on the best CFD trading platform  in Pakistan and learn how to handle different situations, explore the features of the trading platform, etc. Just get started, the most important thing is the first step!

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