Do you regularly see social media influencers sharing financial and investment tips? These influencers are masterful at capturing their viewers’ attention by making hundreds of dollars in profits within minutes!

Upon a closer look, these individuals are experienced forex and gold traders. In other words, they actively trade CFDs as a source of income.

Yes, terms like forex and gold are familiar, but what exactly is CFD trading?

What is CFD Trading?

CFD trading involves speculating the rise or fall of a financial asset’s price. You profit or lose based on predicting the asset’s price movement. Examples of financial assets in CFD trading are currency pairs, gold, Bitcoin, and indices.

CFD stands for ‘Contract for Difference.’ The contract refers to an agreement between a trader and a broker to pay the price difference of an underlying asset. This difference is calculated from when the contract is opened until it’s closed.

CFD trading allows traders to trade financial assets without owning them. This is what price speculation in CFD trading is all about.

Do you need a simple analogy to understand CFD trading?

Let’s say you and a friend are clashing over Bitcoin’s price direction in 15 minutes. You predict it will rise, while your friend says it will slide.

Both of you wager RM100 each. If Bitcoin’s price rises, your friend pays you the price difference, and vice versa if it falls.

After 15 minutes, Bitcoin’s price increases by RM10. You gain RM10, which brings your total to RM110, while your friend loses RM10, leaving her with RM90.

In this scenario, neither of you owns Bitcoin, but both transact based on price speculation.

This is the simplified definition of CFD trading.

What Do You Need to Start CFD Trading?

1. Capital

Good news for beginners: CFD trading doesn’t require large initial capital. With VT Markets, you can own a live trading account with a minimum deposit of $50.

2. Broker Account

Open an account with a CFD broker. (Refer to point 1 above!)

3. MetaTrader 4/5 Platform

This charting platform lets you analyse markets, select assets, choose lot sizes, and execute trades. Available as MetaTrader 4 (MT4) or MetaTrader 5 (MT5).

4. Trading Plan

This plan outlines your strategy: Will you trade hourly, daily, or within minutes? How much risk can you tolerate per trade? A trading plan guides you to trade safely and effectively.

5. Discipline and Resilience

Mental strength is crucial in CFD trading. While you can earn hundreds in minutes, the next trade could wipe out profits just as fast. Managing your psychology is key to long-term success.

6. Basic CFD Trading Knowledge

Understand the financial assets you trade. Learn technical and fundamental analysis. Technical skills help with interpreting charts and spotting opportunities, while fundamentals explain market sentiment via economic and geopolitical news.

Financial Assets in CFD Trading

Forex

Traded as currency pairs (e.g., EURUSD), where traders buy or sell one currency against another.

Indices

Represent groups of stocks measuring market or sector performance (eg S&P 500).

Energy

Trade assets like crude oil, leveraging dynamic price movements in energy markets.

Precious Metals

Gold, silver, platinum, and palladium are safe-haven assets during economic turbulence.

Soft Commodities

Unlike precious metals, which are acquired from mining activities, agricultural products like cocoa, coffee, cotton, and sugar are harvested from farms.

ETFs

Track indices or sectors, exposing traders to stocks/bonds without direct ownership.

Share CFDs

Profit from share price movements without owning them. Unlike traditional share trading, trading CFD shares allows you to profit from a bear market.

Bond CFDs

Governments and firms can raise their capital by securing bonds from investors. Bond trading through CFD offers a systematic way to speculate on this instrument’s price movements.

Advantages and Risks of CFD Trading

Advantages

1. Leverage and Small Capital

Got $100 but want to trade $1,000? That’s where leverage comes in. It boosts your lot size with a small capital.

2. Access to Global Markets

CFD trading isn’t limited to forex. You can also trade gold, silver, oil, stocks, and indices from one broker account.

3. No Asset Ownership Needed

Want to trade oil? With CFDs, you don’t need to buy physical barrels. Remember, CFD trading is about price movement, not ownership.

4. Two-Way Opportunity

Traders can open buy or sell positions, profiting in a rising or falling market.

Risks

1. Market Volatility

Asset prices can change rapidly, causing significant fluctuations in short periods.

2. Economic News

You need to be attuned to global economic and geopolitical news. Markets can swing in the blink of an eye based on new developments.

3. Leverage

It’s a double-edged sword. While leverage increases your exposure, it can also magnify your losses if the market moves against you.

How to Trade CFDs

For simplicity, this section focuses on trading with MetaTrader 4.

A reminder – you must register with a broker before logging into MT4.

As a beginner, you can duplicate the steps below with a demo account. A demo account allows you to simulate trading in actual market conditions.

1. Choose the asset you want to trade. Let’s say you want to sell USDJPY.

2. Click ‘Open chart’.

3. Change the timeframe accordingly by tapping on the chart. M1, M5, M15 and M30 produce a single candlestick in 1, 5, 15 and 30 minutes, respectively. H1 and H4 give you an hour and 4-hour candlestick. D1 gives you a day candlestick, W1 a week candlestick, and MN consolidates a month’s worth of candlesticks.

4. Click the ‘+’ icon to open a Buy or Sell position.

5. Set your Stop Loss and Take Profit. Stop Loss protects you from further losses. Take Profit sets your target to exit and lock in profits.

Then, choose your lot size based on your capital: Standard lot (1.0), Mini lot (0.1), Micro lot (0.01) and Nano lot (0.001). The bigger your capital, the bigger the lot size that you can pick.

6. Finally, click ‘Sell’ to place your trade!

That’s all; we have covered the basic steps for trading on MetaTrader 4.

In actual trading, you’ll need to analyse the market before picking a position. This is where your trading plan helps before clicking ‘Buy’ or ‘Sell’.

How to Choose a Trusted CFD Broker

A CFD broker provides financial services and access to CFD markets. Here’s what to consider when choosing a reliable one:

1. Regulatory Compliance

In CFD trading, you’ll frequently deposit and withdraw money. So, your broker must be regulated to ensure fund safety.

A trusted broker should hold relevant licenses and be regulated by reputable authorities in the financial industry to ensure your fund’s security. Reputable regulators include:

– Financial Sector Conduct Authority

– Australian Securities & Investment Commission

– Financial Services Commission, Mauritius

2. Fund Insurance

Let’s touch wood. What happens if the broker goes bankrupt? You want assurance that your funds are safe.

Worry not! There are responsible brokers offering insurance protection if they have to foreclose.

Here’s one of the responsible brokers – VT Markets offers fund protection of up to $1,000,000 in the unlikely event of VT Market’s foreclosure.

Even though the odds of this mishap are like a speckle of dust, this scheme by VT Markets underlines its commitment to secure clients’ funds and reinforce its reputation as a trusted CFD trading broker.

3. Fast Deposits & Withdrawals

Ensure you can deposit and withdraw from the broker account within the same day.

4. Deep Liquidity

Liquidity determines how easily an asset can be traded. Check the spread. A lower spread means higher liquidity.

For example, VT Markets offers spreads as low as 0.0 pips.

5. Various Account Types

From Standard STP to ECN, Cent, and swap-free accounts, brokers should offer options to suit your trading style.

6. Multiple Deposit & Withdrawal Methods

The more options, the easier it is to manage your funds.

7. Wide Trading Assets

Diversification helps reduce risk. Look for brokers offering forex, gold, oil, commodities, crypto, ETFs, and stocks.

8. Education

Brokers that offer trading education through blogs, videos, webinars, and seminars show they care about your success.

9. Customer Support

Make sure the broker offers 24/7 support and easy access to their service team.

Are You Ready To Trade CFD?

Now you understand what CFD trading is, its requirements, available assets, advantages and risks, how to use MetaTrader 4, and how to pick a reliable broker.

If you’re ready to take the first step, why not open a live account with us?

You just need a minimum of $50 to own a VT Markets trading account.

Sign up for a live CFD trading account today!

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

Dear Client,

New contracts will automatically be rolled over as follows:

Please note:
• The rollover will be automatic, and any existing open positions will remain open.
• Positions that are open on the expiration date will be adjusted via a rollover charge or credit to reflect the price difference between the expiring and new contracts.
• To avoid CFD rollovers, clients can choose to close any open CFD positions prior to the expiration date.
• Please ensure that all take-profit and stop-loss settings are adjusted before the rollover occurs.
• All internal transfers for accounts under the same name will be prohibited during the first and last 30 minutes of the trading hours on the rollover dates.

If you’d like more information, please don’t hesitate to contact [email protected].

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

If you’re new to trading, you’ve probably heard terms like ‘algorithmic trading,’ ‘algo trading,’ or ‘Expert Advisor (EA)’.

But what exactly does it mean, and why does it matter?

Here’s a surprising fact: 70% of all trades in the U.S. stock market are now executed by algorithms. That means most buying and selling decisions aren’t made by humans staring at screens but by lines of code.

In this guide, we’ll break down the definition of algorithmic trading, how it works, its pros and cons, and whether it’s a good fit for beginners like you.

What is Algorithmic Trading?

Algorithmic trading, or ‘algo trading’, uses computer programs to execute trades automatically based on predefined rules. These rules include timing, price, quantity, or complex mathematical models.

How About an Expert Advisor (EA)? Is It A Type Of Algorithmic Trading?

Here’s one way to look at the relationship between an Expert Advisor (EA) and algorithmic trading:

All Expert Advisors operate on algorithmic trading, but not all algorithmic trading are Expert Advisors.

How is this so?

By definition, an Expert Advisor is an algorithmic trading software with MetaTrader 4 and MetaTrader 5. However, the general concept exists elsewhere under different names, like trading bots or automated scripts.

For example, the thinkorswim platform offers ‘ThinkScript’ for limited trading automation. The ‘IB API’ supports algorithmic trading with the InteractiveBrokers trading platform.

While ‘Expert Advisor’ is platform-specific, its concept applies to a broader spectrum of algorithmic trading.

What Are The Differences Between Algorithmic And Manual Trading?

1. Lightning Speed Vs Human Cognitive

Trading programs execute trades in milliseconds. Human cognitive processing speed falls behind this benchmark by a considerable margin due to our staggered nature of drawing a conclusion.

2. Decision-Making Process

When making decisions that impact your financial integrity, you’re battling consciousness shaped by experience, emotions and judgment. This storm of consciousness can lead to impulsive actions that may or may not work in your favour.

With trading programs?

Lines of codes don’t even know what emotions mean! However, programs are exceptional at observing predefined rules and algorithms. This laser-focused characteristic delivers improved trading accuracy and consistency.

3. Scalability

The theory that humans can be excellent multitaskers is a myth. Studies show that the human brain is incapable of completing more than one cognitive task at a time.

Hence why scaling up trades requires immense discipline with a small margin for error, not to mention the sustainability of this practice.

Algorithmic trading doesn’t have this flaw. As long as the programmer has defined the playbook, the program could easily scale up trading across markets around the clock.

4. Adaptability And Flexibility

Is algorithmic trading going to come out on top against manual trading? Not so fast!

While algorithms thrive in predefined conditions, they can be thrown off balance when an unexpected variable comes into play.

For example, a seismic development in geopolitical events can change the markets’ dynamics drastically and invalidate the trading program’s protocols.

This is an area where humans triumph over algorithms.

Because we can perceive real-time events and make necessary adjustments to position ourselves accordingly, we’re infinitely better at pivoting our trading strategies to optimise our trades.

Common Misconceptions

How Algorithmic Trading Works

Algorithmic trading boils down to three steps:

Types Of Trading Algorithm

1. Trend-Following Strategies

These algorithms chase momentum. For example, if Bitcoin rises 5% in an hour, the bot might buy, expecting the trend to continue. Tools like moving averages or the Relative Strength Index (RSI) often guide these decisions.

2. Arbitrage Strategies

These exploit price differences between two or more markets to make a profit. Algorithms can quickly identify and act on these discrepancies

3. Mean Reversion Strategies

These strategies assume prices will revert to historical averages. If Tesla stock drops 10%, the algorithm will buy, betting it’ll bounce back.

4. Sentiment-Based Trading

Advanced algorithms use machine learning and natural language processing (NLP) to analyse news, social media, and financial reports to determine market sentiment. If an algorithm detects positive sentiment around a stock, it may trigger a buy order.

Benefits Of Algorithmic Trading

1. Automation

Trades are executed automatically, reducing the need for manual intervention.

2. Speed

Algorithms can execute trades faster than human traders, ensuring timely market entries and exits.

3. 24/7 Trading

Trading programs can operate round the clock, even when you’re not available.

4. Emotion-free Trading

Algorithms trade without emotional biases, sticking to the strategy.

Risks Of Algorithm Trading

Autopilot, 27-7 operations, lightning-speed trades. Algorithm trading sounds like a definitive solution to generate profit, doesn’t it?

Theoretically, yes, but only if they don’t present these risks (which are inherent to algorithms, unfortunately):

1. Market Risks

As mentioned, trading programs are second to none for observing predefined rules. However, market volatility arises at unexpected moments, such as geopolitical turmoil and black swan events. 

These turns of events aren’t premeditated. As such, trading algorithms aren’t equipped to deal with sudden changes in market conditions. This risk can lead to substantial losses.

2. Model Risks

‘Past performance is not indicative of future results.’

How often have you seen this disclaimer on a brokerage firm’s website, social media and brochures?

This universal truth applies to all forms of trading, including algorithmic trading. Algorithms may perform well on historical data but fail in real-market conditions due to changes in market dynamics

3. Human Errors

Algorithms are only as good as the programmer who wrote their codes. Human errors could still take place in developing the program. This kind of oversight can lead to huge losses if not detected earlier.

4. Glitches And Failures

System outages, latency issues, and connectivity problems can disrupt trade execution, leading to missed opportunities or incorrect trades.

Is Algorithm Trading Right for You?

Algorithmic trading can be a powerful tool, but it’s not for everyone. Here are some factors to consider before deciding to automate your trading:

Do you have a solid understanding of financial markets?

Algorithms do not guarantee profit. A strong foundation in trading principles is essential.

Are you comfortable with technology?

Algorithmic trading requires familiarity with coding, trading platforms, and data analysis.

Can you manage risks effectively?

Even the best algorithms can incur losses. Understanding risk management is crucial.

For those who prefer manual trading, algorithmic trading can supplement decision-making rather than fully automate it.

Wrapping Up

Algorithmic trading isn’t a magic money-making machine. It’s a tool. When used wisely, it can enhance speed, discipline, and efficiency.

For beginners, the key is to start simple, test rigorously, and never stop learning.

Whether you’re coding your trading program or using a pre-built solution, remember: the goal isn’t to replace human judgment, but to amplify it.

Visit our product page on Expert Advisor to learn more about VT Market’s algorithmic trading solutions.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

Dear Client,

The trading hours of some MT4/MT5 products will change due to the upcoming Daylight Saving Time change in the AU. Please refer to the table below outlining the affected instruments:

The above information is provided for reference only; please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].