The basics of trading in 7 short bites
Trading is no longer just for the 1%.
Here are the basics of trading with Capital.com in 7 short bites.
Trading, not investing.
Capital.com allows you to trade the world’s biggest and most popular markets through contracts for difference (CFDs). CFDs are a type of derivative, meaning you do not buy the underlying asset itself. Instead, you buy or sell units of a given financial instrument depending on whether you think the underlying price will rise or fall.
Leverage: what is it and how do I use it?
CFDs are also leveraged, which means you are able to take on a bigger position with a smaller amount of initial capital. In other words, you only put down a deposit of the value of your trade and borrow the remainder from your broker.
Leveraged trading is also referred to as trading on margin. This is because the funds required to open and maintain a position – known as the margin – are only a faction of the total trade size.
You can go long or short.
CFD trading allows you to trade on from a rising or falling market. You can make money on an appreciating or depreciating asset by going long (buying if you think the market will rise) or short (selling if you think the market will fall).
What can I trade?
When CFD trading, you can open positions on a variety of different asset classes, including shares, indices, currencies, commodities and cryptocurrencies – all in a single platform.
How much risk is involved?
All trading is risky. It’s just a fact of the matter. While trading with leverage means that your opportunity to profit increases, your chances of losing are also magnified.
Capital.com implements negative balance protection for retail clients, so you can never lose more than you put in. Additionally, stop-loss and take-profit orders allow you to ensure that you make risk-aware trades – protecting you from any unforeseen downturns in the market.
How does a stop loss work?
Stop-loss order is a key risk management tool. It closes an unfortunate position when a specified price is reached. Stop-losses are used primarily to limit the potential losses on a trade. There is also the option to use a Guarantee stop-loss which is a stop loss that acts as your insurance against disastrous losses or any gaps in the instrument that you are currently trading. It allows you to close a trade at a specific price you have set without incurring major losses. The guarantee stop-loss comes at a fee.
They may save you from losing too much when the trend changes its direction against you. When the markets are volatile, stop-losses may become an investor’s best friends, helping to limit trading risks.
What are margin requirements?
Trading on margin you pay only a fraction of the actual price. For example, a 10% margin requirement means that you have to deposit only 10% of the value of the trade you want to open, and the rest is covered by your CFD provider.
Margin requirements differ depending on the market you want to trade. The lowest margin requirement ratio we offer currently is 2% (max leverage 1:30).
If the value of money in your account falls below a certain level, you get a margin call requesting to fund your account or reduce positions. In extreme cases, a broker may be forced to close investors' positions.