Over the past few years, Contracts for Difference has created a huge buzz in the trading industry, making it one of the most traded investment products in the retail market industry. It is even slowly replacing traditional shares trading because the product has numerous advantages, outweighing some of its disadvantages.
Why Go For CFD Trading?
A lot of you might wonder what CFD trading has that drives the attention of many people into trading with it. Leverage – it is one of its major advantages. When you buy shares on a regular basis, you get to pay the full price of the product which is costly to other small-time traders. But this isn’t the case with CFD. As long as you can pay the initial deposit or the margin, you can get the same exposure as the ones who bought the asset in its full amount.
Shares That Are Similar To Its Underlying Market
Very closely, CFDs follow what the underlying market does. When you purchase a CFD share, it is like buying market shares of that particular company. If you want to purchase 2,000 shares, then you must purchase 2,000 shared CFDs. When the time comes and you want to trade the CFD shares that you have, then your position gets adjusted and offsets the effects of your dividend payments. But since you don’t own the underlying asset, you don’t get the same privileges as the ones that are offered by shareholders. This principle is also applied to Forex CFDs.
Most of the time, the margin requirement ranges from 1 to 10% only. But leverage magnifies your gains and your losses too. Because of that, you need to take leverage very seriously when you trade in CFD. Do not overtrade. Do not overleverage. As much as possible, you should incorporate stop loss into your trades as a form of risk management strategy.
Trade From The Thousands of Financial Investments
It would be so convenient if you can trade multiple assets in a single trading account. If you think this isn’t possible, then wait until you come across CFDs. Brokers in CFD offers key markets that are famous around the world. It brings a lot of good benefits to traders as they easily gain access to these markets in a single trading platform. Also, there are now a lot of brokers who offer CFDs to their clients as one of their trading options.
Long Positions and Short Positions
You can go long or go short in CFD. This way, you can benefit in the market, whether the price of the underlying asset is rising or falling. It is the best way to take advantage of the market without concerning yourself with a possible market downpour.
These are just some of the benefits offered by CFD Trading. Most of the time, CFD trades are also open-ended. If you want to close a trading position, all you have to do is to trade in the opposite direction than the ones that you used when you opened a trading account. You can hold a CFD position overnight but certain fees need to be paid to do so.