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CFD Trading In India: Full Overview

CFD Trading India

CFD trading is a growing phenomenon that is gripping India with its charisma and probability to make profits in the financial sector. As it is known, the contract for difference helps traders speculate on a plethora of assets in various financial markets without buying them. However, in an attempt to climb the CFD ladder, searching for a tailor-made broker can be difficult.

Brokers like PrimeFin are offering CFD trading services in India. Thus, a willing trader can create an account for trading. Interestingly, trading in CFDs opens doors for traders who can’t afford to invest a bigger amount in the market.

People in India trading CFDs have different reasons to do that. The following article notes the matter and sheds light on various other topics encircling CFD trading in India.

TABLE OF CONTENTS

1. What is CFD trading?
2. How Does CFD Trading Work?
3. Is CFD Trading Legal In India?
4. How to trade CFDs?
5. Know about CFD trading
6. What are the benefits of trading CFDs?
7. CFD Trading Strategies
8. Tax Implication Trading CFDs
9. Why Trade CFDs with PrimeFin?
10. Conclusion
11. FAQs

What is CFD trading?

Contract for difference, commonly known as CFD, is a derivative. It means that a trader does not own the underlying asset. It essentially means two parties agree mutually to exchange the distinction of the prices of the current security and its market value when the contract expires.

Moreover, it exhibits a contract between a broker and a trader. Therefore, the difference between buying and the selling price gets exchanged as per the agreement.

For instance, if the entry price is lower than the closing price, the buyer will earn profits. On the other side, the broker will earn if the entry price remains higher than the closing price. That means vice-versa. Thus, the trader would incur losses. It may be bigger or lesser depending on the speculation amount.

However, if a trader attempts to short the position, the opposite may be true. This is because, during CFD trading, no parties own the involved securities.

How Does CFD Trading Work?

CFD trading operates differently for every trader, depending on the approach. However, the fundamentals remain fixed for everyone. Therefore, you cannot buy the underlying asset. However, if someone is trading CFD, that means that person can exhibit the ability to exchange the price difference by buying or selling an asset or security.

Opening a position means you are buying, while closing means selling. As a trader, you can earn profits by going short or long as per market trends. Thus, that’s the significant difference you can draw compared to other trident types. Moreover, investors primarily use CFDs to list their bets on whether the price or rate of an asset or security would rise or not. If the assumption is correct, market participants will end up making sufficient profit.

For example, a trader does not need to purchase platinum bars. Instead, he can simply speculate whether the prices of those bars would rise or fall. The prediction would offer profits to investors.

Traders are allowed to speculate either the downward movement or the upward movement. After purchasing, if a trader sees the rates of CFDs rising, he will offer the holding to short in the market to book profits. The net difference between purchasing and selling helps in registering the calculation for gains.

On the flip side, if a trader witnesses the asset price declining, that would mean that he will open it to sell or short in the market. Similarly, the net difference between selling and buying would determine profit-making.

Purchasing offsetting trade is vital to buy for a trader to close the position. Meanwhile, the net loss gets settled through cash through the account.

Is CFD Trading Legal In India?

CFD trading is entirely legal in India and allowed by reputed and responsible authorities which regulate the financial market. However, there’s a little twisted licensing system. But people can start with brokers like PrimeFin that can offer CFD trading facilities to market players.

Offshore brokerage firms are also allowing non-resident Indians to participate in CFD trading. Thus, Indian traders are making the most of growing technology.

However, while trading CFDs, a trader must ascertain by checking whether the broker offering CFD trading has licenses and registration numbers from the top authority.

For knowing more about legalities, one can discuss the topic with a counsel of an expert chartered account. They can offer better insight regarding legalities.

How to trade CFDs?

Before contemplating trading in the contract for differences, always ask the question, - what are CFDs? Learn about it. That’s the maiden step to trade them, irrespective of an investor’s experience in other financial markets. Funding or investing time and patience here is a different ball game.

For trading CFDs, one should follow the steps below:

1. Know about CFD trading

If you aren’t aware of the CFDs and try to trade with them, Of course, funding, possible losses might await you. Hence, it is essential to gain some information from experts and observe the market and its performance over the period. Moreover, it helps in knowing the nuances of the trading.

Traders can read articles, watch videos, read news and research about it with journals written by experts. When you are fully aware of the concept, able to decipher the wrongs and rights of CFD trading, that’s the time to move on to the other stage.

A CFD trader should research what is CFD in forex or commodities or stocks or cryptocurrencies.

2. Select a market

Market selection is one of the essential criteria that an Indian trader should think about. Trading in the correct marketplace is akin to making a good decision. Focus on a single market initially while learning about its theatrics and response to CFD trading. For planning the trade, investors can use technical and fundamental analysis tools from PrimeFin. That can be helpful in reaching the right decision.

3. Choosing a broker

After selecting the market for trading, it is time for you to choose a broker of your choice. However, not every broker offers CFD trading. Thus, you need to first see and browse for such brokerage companies. PrimeFin is one financial service provider that renders the services for trading CFDs in India.

However, it may not be simple search and deposit funds. Thus, reading reviews of brokers can help Indian CFD traders before they zero in on a brokerage firm for trading. But that requires patience and the ability to read properly.

4. Decide when to buy and sell

Decision making is a pivotal aspect of CFD trading in India while investing in an asset. CFD trading is not different. Here, a trader needs to see the market trend and movement before deciding whether to buy or sell. One may require keeping up with patience and using tools, indicators, and charts to figure out the appropriate time for trading.

Traders mostly short their assets when they see the market is surging and long when the market plunges. Thus, the strategy is simple but important to execute at the right time.

Any CFD’s price depends upon the price of an underlying instrument. Therefore, the first price is usually the bid, and the second one is the offer.

5. Pick up trade size

Picking up the trade size can be a huge parameter in profit and losses. Also, if a trader is not experienced enough, it is better to start with small sizes. It can help in getting accustomed to the volatile market and see what works best for a trader. In addition, taking tiny steps weed out the perils of losing funds.

Once a trader starts feeling comfortable with the market, that’s the time to move ahead with bigger trade sizes and see how CFD trading works.

In equity trades and otherwise, one share is equal to 1 CFD. Moreover, CFD is a leveraged product. It means a trader is required to have a slight percentage of the overall value of trade. That’s also called margin. Also, it is important to have sufficient funds before in your trading account.

6. Application of stop-loss

Trading without stop-loss is like driving without a seat belt. The accident is inevitable, and loss is yours. So, it is better for the safety of funds if a trader uses shield protection that does not let you suffer the wrath of market unpredictability and volatility while using CFD trading.

When the price of prediction moves in the opposite direction, a stop-loss can do wonders by closing your trades by closing them at a certain level. That prevents further losses.

7. Monitor your trades

Many CFD traders, after earning some money, do not pay attention to the market. But that habit can cost them. The market is unpredictable and can alter with a piece of news or a rumour sometimes. So, closely watching the market and deciding upon a strategy to enter or close the positions are some ways to trade.

Once your trades get placed, you can see loss/profit updates in real-time.You have the power to exit your trade any moment you feel like during profit booking.

What are the benefits of trading CFDs?

CFD trading is the modern alternative to the traditional way of investment in the financial market. Over the past decade, this form of trading has gained popularity. Even in India, traders are witnessing its benefits and are willing to trade through it.

Here are some benefits that a trader can have while trading CFDs:

1. Flexible lot sizes

Brokers offer flexibility to traders while they pick up lot sizes. Thus, a brokerage firm can accommodate a large number of traders. PrimeFin renders that option too. Amateur or casual traders or beginners looking to experiment can do that comfortably while experimenting with trades. It limits their risks.

Once you start trusting your ability as a trader, that lot size can be increased for trading.

2. Huge leverage possibility: CFD trader India

In the traditional way of trading, a trader has to commit 100 per cent of the funds while purchasing or bidding. However, CFD trading comes with the possibility of leveraging. For instance, if a trader is willing to purchase stocks worth USD 5000, he’ll have to tie up the entire money for investment.

However, with CFD, the margin requirement may reduce it to around 5 to 10 per cent or even less, depending on the asset. Thus, traders can increase their profits with limited investment or funds at stake.

However, one has to be vigilant and use negative balance protection to avoid losses. But chances of net positive profits are higher if you use leverage judiciously.

3. Less trading fees

Traditional trading methods are expensive on pockets due to the fees charged on them. However, on the other side, CFD trading is generally cost-effective. Brokerage firms typically make their revenues when a trader trades in the market. A small percentage ic charged from the value of trading funds.

For instance, when a trader spends USD 100 for opening a position of USD 2000, a broker may charge a sum for covering the difference of USD 1900.

Moreover, traders have to pay spreads or commissions to brokers during trading. Meanwhile, every trader needs to know the process of charging money.

4. No set expiry date

Unlike many instruments or assets that come with an expiry date, CFDs do not have such restrictions. As a result, traders can keep their patience while trading and hold a long position. However, day traders may not get bigger profits. But they can surely make it big by investing for a long-term.

5. Hedging options

A hedged position can be taken during CFD trading due to the requirement of limited capital commitment. In addition, traders have huge funds for hedging in their accounts. Thus, that works as a satisfying advantage.

It helps immensely when you take risky positions while trading CFDs. You dcan average your losses and possibly convert them into profits by taking additional positions when the market trend changes.

CFD Trading Strategies

There’s no shortcut in CFD trading. Thus, as a trader, you have to build your strategies and work patiently and relentlessly. In addition, you may need to improvise and improve with time. Therefore, learning them and implementing them is essential for drawing better results.

  • Use stop and limits for managing risks
  • Develop trading knowledge
  • Monitor open positions
  • Try to hedge a losing trade or stay away
  • Use demo account before going into live trading
  • Use golden rules for CFDs
  • Take small steps and gradually go bigger

Tax Implication Trading CFDs

The tax implications in India regarding trading CFDs are not too specific. Traders have to pay taxes on the revenues or earnings generated during the process. Hence, no other policies have been chalked out by the government.

Why Trade CFDs with PrimeFin?

Trading with PrimeFin can benefit people in more than one way to traders. The broker has been offering CFD trading for a while and has some considerable features that you can’t overlook.

  • It offers CFDs on multiple assets and instruments, including indices, stocks, commodities, forex, and cryptocurrencies.
  • Traders can trade in more than 10,000 markets as per the broker’s claim.
  • It has got a platform like MetaTrader4, which can help in yielding desirable results.
  • The broker renders indicators, tools, and charts that can help in putting better strategies.
  • PrimeFin is a regulated broker. Thus, Indian traders can trust it for trading.

Conclusion

CFD trading is emerging as one of the methods that are opening gates for traders to experiment in the financial market. It does not require as much funding as needed in a traditional way of trades. Thus, users are getting attracted to it. However, a market player should observe and learn the tricks of the trade before entering into it. Also, picking up a broker that suits your strategies is equally essential for investment.

FAQs

Are CFDs legal in India?

Trading CFDs are legal in India because there’s no circular against it so far.

What is CFD trading, and how does it work?

CFD is a derivative form of trading that stands for Contract for Differences. It works differently from the conventional market. One can only speculate the market or assets’ prices and can’t own the underlying asset. It is all about speculating.

Where can I trade CFD in India?

You can trade CFD from anywhere in India.

What is a CFD Trading example?

CFD is leveraged trading. Thus, you can speculate on a stock worth USD 1000, by having less than USD 50 in your accounts. That’s only possible with CFD trading.

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