Trading on Contract For Difference (CFD): How to Open a Demo Account

What Is a CFD Trading Account

If you want to try out binary options trading without putting your money at risk, then there are several demo trading accounts available in the market. You can even open an account with these brokers before you start the actual trading if you wish. All these brokers have their own strengths and weaknesses, but the major one is that they offer free trade trials.

  • You can either go for a full service broker such as IQ Option or perhaps a discount broker like eToro or SaxoBank

demo trading account

Advantages of these accounts

These brokers allow you to trade in multiple currency pairs using real market situations.

  • So this means that with each demo trading account you can practice day trading strategies, swing trading or any other day trading strategies that you have learnt from the books or online courses.
  • These demo trading accounts will help you understand how different positions affect the market and will help you make decisions about trades based on the information you gather.
  • This will also help you understand which currency pairs are good for long term trading and which ones are not.

Useful advice

It is also useful to open a separate forex demo account for CFDs, both with or without a mini account. CFDs are derivatives that are traded on margin. The trader is actually borrowing the underlying assets and trading them against prices (the ‘countertrend’). They provide high spreads, minimum loss and also have maximum leverage. So for example if a trader wants to trade the EUR/USD pair, he can set up his demo trading account for this and simply use the leverage to lock in profits.

Spreads

Some of the biggest spread betting providers offer separate forex demo accounts for traders who want to practice day trading Forex and CFDs. One of these providers, Metatrader, offers a facility called Metatrader Pro, which is used by many CFD trading companies and professional traders as their main platform. With this account a trader can not only test their skills with the MetaTrader platform but can practice and develop their strategies offline as well.

CFD contracts in simple words

CFDs are a type of bet between two parties on the future value of a particular financial instrument (currency, stock, etc.), in which both parties agree to settle an amount equal to the difference between the opening price and the closing price of a position.

Hence the term “CFD”. In simple words, if you buy such a contract and the price of the underlying instrument rises, you will receive the corresponding difference from the broker who sold it to you. On the other hand, if the price falls, the difference will be taken from your account.

CFD trading: what is it?

When making operations to open a position on a CFD contract, you need to know that you do not become the holder of the underlying instrument. It is a bet with the other side of the contract, whether its price will rise or fall.

CFD contracts allow you to trade:

  • Shares,
  • Currency,
  • Cryptocurrency,
  • Indices,
  • Raw materials,
  • Debt obligations.

When working with CFD contracts, you pay only the broker’s commission for opening and holding a position. A distinctive feature of CFD trading from trading on the Forex market is making a profit from the difference between the buy and sell prices.

For example:

  • The account has a leverage of 1: 1,
  • You bought an Apple stock CFD for $ 950,
  • After a month, the contract costs $ 1150,
  • You closed the trade for a profit of $ 200.

Risk management strategy

Many traders like to use a risk management strategy when they are trading foreign currency. This strategy involves a risk control plan where the trader controls the amount of risk he is exposed to in any one trade. This can be done in a number of different ways, including:

  • Setting up stop loss orders;
  • Adjusting stop losses;
  • Diversifying your trades.

There is no reason why the risk management strategy cannot be used with a demo Forex trading account, where you can test your strategies against live market data type prices. This will allow you to see if the strategy that you have come up with is robust enough to stand the test of time against the different market conditions.

Test of strategies

Another popular way for most traders to test their trading strategies is to place a single trade using a spread betting platform and allow it to run for a number of days. This allows them to make sure that their strategy works well in all situations and they can then adjust it accordingly.

  • Most CFD providers offer this as part of the membership package, but some only offer it as an add-on service.
  • There are a number of different types of risk management strategies that you can use with a demo Forex account. The simplest ones involve setting limits and targets and monitoring the progress of your multiple trades over time.
  • There are more complex strategies involving stop loss orders and order types as well as more flexible trading parameters.

High volumes

The type of traders that can really benefit from such a service would be those who trade on the high volumes of the market. These traders need to get quick access to information to help them make decisions about which currencies to purchase and which to sell. They do not want to take the risk of their strategies going wrong, so that’s why they need to use a reliable service provider with a good track record. Most CFD providers have a wide range of traders that use the platform at various times throughout the day. This means that if one trader goes off at one hour with their charting software, the others can still get on at lunchtime and still be in front of it when it comes time to close out the market for the day.

Verdict

Of course, there are many other benefits that come with using a well-known broker like IQ Option. Their platform will give you access to all the latest information as well as offer up a number of tools that are designed to help you succeed on the forex market. These will include indicators and signals as well as expert reviews and tips that will help you spot trade opportunities as well as get the most out of your profits. A good CFD trading platform will also offer traders a place to leave their trades and receive advice from their team members. This helps ensure that every trader has an equal opportunity to profit as well as seeing the system in operation every single day.

Also these brokers can help you to work with the CFD trading, so you definitely should check them out:

Tickmill

eToro

Binomo

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Denis Tannen
Denis Tannen / article author
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