CFD stands for Contract for Difference. It is nothing but a trading system where traders will use a cfd trading South Africa broker platform to speculate on futuristic prices of commonly available financial market instruments. If the contract information happens, the traders make a profit. If you wish to enter the CFD trading market, it is better to know the following terms commonly used in it.
Terms to know in CFD trading
Long – If you think that the price of an instrument like stock will go up shortly, you can predict a higher price and buy the contract. It is known as a long position. Here, you will earn profits if the price moves up as expected.
Short – If you are in contrast with the long position mentality and think that the price will fall soon, you can go short with that instrument. You will make profits only if the price of the instrument falls as expected.
Margin – To let every trade begin, you should deposit a minimal amount asked by the broker. It is known as margin in CFD trading. Also, you should maintain this margin amount during the entire session to avoid closure of trade.
Leverage – Leverage trading is an act of opening a larger position with a smaller capital and borrowing the remaining from the broker. You would get profits and losses depending on the total amount and not what you have deposited.
Maintenance margin – If you do not maintain this much amount in your trading account balance, you cannot hold your positions.
Used margin – If you have some positions open at the moment, you would have spent some amount as a margin to hold those positions. This margin is known as a used margin.
Free margin – The remaining margin amount available in your account to let you use it for other trades is known as free margin.
Stop-loss order – If you do not wish to risk more money in a particular trade, you can open stop-loss order. Once you do so, you will set a defined price at which your trade should close. So, you can stop the trade from causing you more losses than the pre-set risk.
Take profit order – As the stop-loss order helps you to prevent losses, a take profit order will help you to close the trade once a specific profit amount is attained. As the profit will start reducing after a point of time, it will be helpful to set a take profit order for an expected profit amount. The order will get closed even if you are not there to monitor it during that price.
Ask price – The maximum price at which a trader can buy the piece of the trading instrument is known as the ask price of it. The ask price will be the top end of the spread.
Bid price – The bid price is nothing but the price at which a seller is ready to sell the contract. The bid price indicates the end of the spread.