CFD is an acronym for contracts for difference. In forex trading, a CFD allows traders to guess whether a currency will rise or fall in value. Because the forex market is so volatile and prices change almost constantly, it is a less risky way to trade. That said, traders typically use leverage to maximize their profits, so there is no such thing as a risk-free trade when using forex CFDs.
More About CFD Trading
Forex CFDs are traded in pairs, with the USD/SGD a very popular pair. The unit by which forex prices fluctuate is called a pip. There is a learning curve with CFD trading, but the main principle to understand is that you predict whether a price will go up (go long) or fall (go short). For example, if you think the USD will rise against the CGD by one pip, you go long by buying at a lower price and selling when it rises. If the value of the USD/SGD falls, then you lose and make a loss. Going short works in the same way, but instead of buying first, you sell.
MT4 Vs. MT5
Once you have decided to trade forex CFDs, it is important to choose the right trading platform. There are lots to choose from, but the main two are MT4 and MT5. What is the difference between the two? Let’s find out. MT4 is the main platform used by forex traders working with CFDs and any broker that has a link for MT4 download for PC is a good option. MT4 offers a lot of functionality and is very secure, so traders don’t need to worry about losing their trading positions.
MT4 is also very easy to use. It is available in multiple languages, so wherever you are based, it will work for you. Another useful feature of MT4 is the automated trading functionality. This lets traders open and close CFD trades based on pre-set rules. MT5 is a later version of MT4, which makes it equally popular with traders. There is more functionality and additional features, such as the ability to move between different accounts and more indicators that are unavailable in MT4.
MT4 Is the Best Choice for Forex Trading
Both trading platforms have their pros and cons, and it is sensible to test them both out to see which one suits you best. However, forex traders usually prefer working with MT4 because it has many features that specifically suit forex trading. Is MT4 right for you? Only you can make that decision, so look for a forex broker that offers CFDs and MT4 and try trading using a demo account.
The best way to get a handle on trading forex CFDs is by practicing your trading strategies. Try out the features and functionality of MT4 and see whether you can make a profit in your demo account. Once you have grasped how MT4 works, it is time to move on to a live account, with real money.