A practical handbook to getting started in the world of CFD trading – part 1

The world of CFD trading can often be puzzling. Financial markets provide a plethora of knowledge and a dynamic learning environment, from making sense of the complexities of global finance to risk management. It's crucial to remember that CFD trading also involves significant risks, and losses will be part of your journey.

The initial hurdle lies in navigating the jargon and discovering a few technical aspects.

This article aims to demystify these concepts, guiding you from confusion to confidence in taking the first steps in CFD trading.

This first installment of the ‘how to’ series provides the vocabulary you need to learn to get started in trading and understand analysis.

Trading is similar to discovering a new language or learning how to drive. It’s crucial to build the foundation first, and only then move on to discover more technicalities.

Financial assets are tools that allow investors and traders to place their money in an attempt to generate profits – of course, losses are also common and are a part of trading, and will occur in your trading journey.

There are plenty of assets to trade and discover, including equities (or stocks), currencies, cryptocurrencies, commodities (oil, softs, and metals like gold), and bonds.

“Taking a position” in an asset signifies participation in its related market by buying or selling it.

Trading equities or stocks CFDstypically involves taking positions in a company’s publicly listed shares (those listed on a public exchange, like the S&P 500 or Nasdaq).

Some of the most traded public companies are Apple (AAPL), Google (known as Alphabet, GOOG), McDonald's (MCD), and Walmart (WMT).

An infinity of other names are publicly traded in global stock exchanges.

The two, three, or four-letter “code name” next to a company name is also known as a company’s “ticker.” Every traded financial asset possesses its own unique ticker.

Participants may trade stocks based on performance numbers such as earnings (or earnings per share, “EPS”), expected revenues, future acquisitions, and many other elements.

Trading currencies CFDs usually implies trading one currency against another, also known as a “currency pair”.

The most common examples of currency pairs are: EUR/USD (euro against the US dollar), USD/CHF (US dollar against the Swiss franc), and GBP/JPY (British pound against the Japanese yen).

G7 nations traditionally offer the most typically traded and liquid currencies.

Their names, or “tickers,” are:

• USD – or US dollar for the United States
• CAD – or Canadian dollar for Canada
• NZD – or New Zealand dollar for New Zealand
• AUD – or Australian dollar for Australia
• EUR – or Euro for the European Union
• CHF – or Swiss franc for Switzerland
• GBP – or British Pound for the United Kingdom

Other tradable currencies, such as the KRW (Korean won), PLN (Polish zloty), or SEK (Swedish krona), are also available to be traded as CFDs on platforms or “brokers” like OANDA.

Participants may trade currency CFD pairs (also known as “Forex pairs” for foreign exchange) based on an economy’s inflation numbers, Gross Domestic Product (or GDP) data, or its employment (or “labor”) data.

Cryptocurrencies are the newest addition to the world of financial assets.

The first one, Bitcoin, was introduced in 2008.

Unlike traditional money or “fiat currencies” such as the US dollar or the euro, cryptocurrencies exist only in digital form, which is why they may be called “digital assets.”

They use a technology called “blockchain” to back-check and solidify the exchange of information (similar to a bank account), in the case of a crypto transfer for example..

Each cryptocurrency has its own token (for example, 1 Bitcoin or 1 Ether) that people can buy, sell, or hold as a form of value.

They were created as an alternative to government-issued “fiat” currencies, with the idea of providing a decentralised money system not controlled by banks or governments.

Some of the most commonly heard and traded cryptos are Bitcoin (BTC), Ethereum (ETH), and Solana (SOL).

Trading commodities CFDs usually means taking positions in natural resources and raw materials commonly traded in the global economy.

The most common examples are gold, silver, oil, and natural gas, but commodities also include agricultural products like wheat, corn, and coffee.

They are often divided into two main groups: hard commodities (such as metals and energy) and soft commodities (such as cotton, wheat crops, and livestock).

Hard commodities are also the most commonly traded.

Energy commodities comprise oil (WTI for US oil or Brent for UK oil), natural gas, or gasoline.

Metals, on the other hand, include gold (XAU), silver (XAG), copper (XCU), platinum (XPT), and others.

Although less commonly traded, trading interest rate products usually involves financial instruments whose value is linked to government or corporate debt and the prevailing level of interest rates.

The most common examples are government bonds (such as U.S. Treasuries or German Bunds) and short-term interest rate futures.

Investors use these products to manage risk, generate income, or speculate on changes in central bank policy (e.g., the FOMC and its anticipated interest rate decisions).

The key point to understand about bonds and interest rate products is that they pay a yield — an interest rate linked to how long the bond lasts.

For example, the 30-year yield is the interest paid on a government bond that matures in 30 years.

These yields are important because they directly affect borrowing costs from consumers or companies, such as mortgage rates.

Going “long” signifies entering a buying position in CFD trading.

Like buying an asset you believe will appreciate (its price increasing), going “long” means you are taking a directional position that the prices will increase.

To “bid” means an intent to buy.

The “prices are bid” phrase also implies that prices for an asset are rising.

Going “short” is the reverse, which suggests the entering of a selling position in trading.

The concept of going short is a bit less intuitive. The idea is to borrow an asset in the expectation of its price decreasing. Closing a short position will then “give back” the borrowed asset for a profit (if prices go down) or a loss (if prices end up rising).

If you are “offered”, you have an order to sell an asset, or go “short”.

“Staying on the sidelines” implies that a trader is not looking to actively participate in the markets.

“Price action” is a term commonly used in trading to describe a traded asset's movement or change in price.

A trending price action signifies that prices are evolving in a continuous direction—either upward or downward — showing momentum and dominance of buyers in an uptrend or sellers in a downtrend.

Upward-trending prices in daily life would be, for example, oil prices going from $3 per gallon in January to $3.10 in February and then $3.30 in March.

A rangebound price action, formed in trading ranges, on the other hand, signifies that prices move back and forth without establishing a clear upward or downward direction.

Rangebound trading conditions tend to show a lack of new elements to significantly affect an asset’s price and/or a balanced indecision about an asset’s expected value.

Using a similar example, rangebound prices in daily life would be like milk prices going from $2.00 a bottle in January to $1.90 in February and back to $2.00 in March.

After getting familiar with basic trading terms, our next installment in the series will dive into technical analysis.

This includes discovering its own lingo, how it looks with charts, and the well-known "candlestick," "trading patterns," "break-retests," “support and resistance."

Trading represents a continuous journey, and with sustained effort and engagement, market fluctuations and their terminology will become easily understandable.

Through our “How to get started in the world of trading series”, you will get familiar with the trading terms you will encounter when reading and watching markets.