eToro CFD

Introduction

Welcome to our comprehensive guide on trading Contracts for Difference (CFDs) on eToro! Here, we will cover everything you need to know about CFDs, including how they work, their advantages and risks, and how to trade them via this online investment platform.

Whether you are a beginner or an experienced trader, our guide will provide you with all the essential information about the dynamic world of CFD trading. So, let's dive in and explore the exciting possibilities of CFDs on eToro together!

Understanding Contracts for Difference or CFD Trading

In finance, CFD means "contracts for differences", an agreement on a futures contract where the differences in the value from buying and selling of a financial instrument, is made through monetary payments as opposed to the delivery of securities or physical goods.

Simply put: CFD involves a trading engaging in a contract with a CFD broker, instead of buying an underlying asset directly.

CFDs assures that even in small investments, there is a possibility of achieving yields equal to the underlying asset or market.

Key Points of CFD Trading

• CFDs permits the trader to exchange the difference in value of an investment product during the time between opening and closing a contract without having to claim ownership of the actual underlying security.
  
  
• CFDs are a top choice of day traders who maximizes the strategy of leverage when trading assets that are usually more expensive to buy and sell.
  
  
• With all its benefits and advantages, CFD also comes with a risk to lesser industry regulation, the possibility of liquidity and the requirement to maintain enough margin to offset potential leveraged losses.

Remember: If you are a trader only looking to simply trade shares of invest your money on an index fund, CFDs may become too complex for you. However, if you want to apply advanced investing strategies such as using leverage trading and short-selling, then you might want to learn more about CFD trading.

Why Trade CFDs?

Trading via CFD gives traders greater exposure while using lesser capital. It also provides traders the opportunity to capitalize on market movements and the ability to trade a wide variety of markets and assets.

The last decade has seen traders opting to trade via CFDs when trading stocks, commodities, indices and currencies because of the flexibility it brings as compared to the more complex world of traditional trading. CFD trading also paves better access to leveraged trading, foreign markets, short selling and fractional shares.

But wait, what are fractional shares?
Fractional shares are part or a fraction of a share. With CFD, you don't have to buy the whole value of a financial instrument. Instead you can buy a literal share of a stock.

For example:
If Apple's stock is valued at $1,000, on eToro you can opt to invest a $50 Apple stock with 1:10 leverage, making you hold a stock of Apple valued at $500, which amounts to half of the total share of Apple in your portfolio.

Assets You Can Trade on eToro via CFD

The assets a trader can trade through CFD in eToro are currencies, stocks, indices, cryptocurrencies and commodities. On the asset's trading page or window, you will see a "CFD" label for the Buy or Sell position.

For assets that only allow CFD trading for Sell positions, you should be able to see a "CFD Trade" label on the asset's Sell trading window.

Is CFD Trading Allowed All Over the World?

In most countries, CFD trading is allowed except for the United States and Hong Kong. Due to SEC regulations in the United States stating that it goes against US securities law, CFD trading is not available for US traders.

Therefore, users of eToro residing in the United States or those accounts under eToro USA are not allowed to do CFD trading.

Is CFD Trading on eToro Safe?

Yes. Since eToro follows the regulations set by tier-1 financial regulators such as the CySEC, ASIC, FinCen and FCA, the funds of eToro users are safely secured at leading and trusted banks while any personal information is protected under an SSL certificate.

Remember: eToro offers CFD trading in several countries such as the United Kingdom, France, Australia, Spain, Italy, Germany but not in the United States and Hong Kong due to existing conflict with current financial securities law.

Risk of CFD Trading

CFD trading also comes with its own set of risk, otherwise everyone would have gotten rich because of CFD trading. The challenge to having a successful strategy in CFD trading is to understand its various complexities and to also have a wide knowledge about the financial market.

For example:
In CFD trading, traders can lose more than they originally invested. Because of the use of leverage, CFD trading is seen as riskier than traditional trading.

In CFD trading, traders are required only with a small amount of trade value, normally 5%. If the trade heads to a favorable direction, traders will then earn 100% profit. However, if the trade goes the other way, traders can potentially lose 100% of the total trade value.

How to Trade CFDs on eToro?

1. Open the eToro platform and select an asset offered as CFD. This could be an index, stock, currency, commodity or any other asset.

   

2. Next, open a position and the set conditions like either a short or open position, leverage value, and amount to be invested.

   

3. You and eToro then agree on a contract such as the opening value of the position, as well as whether it'll consume overnight fees and other fees.

   

4. The position is opened until you close it or by the auto-close command caused by the Stop Loss or Take Profit provisions of the contract.
   
   
5. If the CFD position closes in your favor, you get a return from eToro, while if the position closes at a loss, you will pay the broker the difference in value.

Frequently Asked Questions (FAQ)

How can I open an eToro CFD trading account?
Opening an eToro CFD trading account is the same way as opening an eToro account. In order to do this, follow these steps:

1. Visit the eToro website and click on the "Sign Up" button.
2. Enter your personal details, including your name, email address, and password.
3. Verify your email address by clicking on the link sent to your inbox.
4. Provide additional information, such as your country of residence and phone number.
5. Verify your identity by uploading a government-issued ID, such as a passport or driver's license.

What is the minimum deposit for an eToro CFD trading account?
The minimum deposit requirement for trading CFDs with eToro is actually the same requirement for an eToro account. However, this varies depending on the country of residence and the payment method used. For most countries and payment methods, the minimum is $200.

Can I trade CFDs on eToro using a demo account?
Yes, eToro offers a demo trading account that allows users to trade CFDs without risking real money. This practice account is a simulated version of the trading platform and provides access to all the same instruments and features as the real platform.

Can I trade CFDs on eToro using a mobile device?
Yes, you'll be able to trade CFDs on eToro with a mobile device. This broker provides a mobile trading app that is available for download on both iOS and Android devices. The app is free to download and provides access to all the same trading features as the desktop platform, including the ability to trade CFDs.

What is the maximum trade size for CFDs on eToro?
The maximum trade size for CFDs on eToro varies depending on the specific instrument being traded, as well as the account type and trading experience of the user. Generally, this broker sets a maximum trade size of $2,000 for most CFDs./p>

However, for certain popular CFDs such as major forex pairs, the maximum trade size may be increased up to $10,000. Additionally, eToro may allow for larger maximum trade sizes for users with more trading experience or higher account balances.

Can I automate my CFD trading on eToro?
Yes, you can automate your CFD trades on eToro using the platform's CopyTrader and CopyPortfolio features. CopyTrader allows you to automatically copy the trades of experienced traders, while CopyPortfolio allows you to invest in a diversified portfolio of CFDs.

With CopyTrader, you can browse through the profiles of different traders on eToro and select the ones whose trading strategies you want to copy. Once you've selected the traders you want to copy, eToro will automatically execute their trades in your account. You can also set a maximum amount to allocate to each trader, as well as customize the stop-loss and take-profit levels for each trade.

What is the difference between a long and short CFD position on eToro?
In CFD trading on eToro, a long position means you are buying the CFD in the hope that its value will increase, while a short position means you are selling the CFD in the hope that its value will decrease.