Advantages of CFD trading
Contract for difference is а sought-after commercial tool with which а trader has the opportunity to earn money depending on cost fluctuations of the underlying asset, which underlies the contract, not possessing the asset itself.
Exchange commodities, stock indexes, and various goods may perform the role of the underlying asset. The amount of the earnings of the trader directly depends on the difference between opening and closing prices of the position adjusted for commission payments.
Why is it profitable to work with CFD?
CFDs are derived assets. This financial tool exists on the market for quite а long time, but it turned out that it began to gain popularity only recently when its advantages have been actively advertised. This contributed to а more rapid growth in the popularity of this tool. The most remarkable advantages of CFD are listed below.
Trading CFDs is much easier than trading gold or stocks. The reason is that there is no need to physically transfer the goods. Moreover, the profit is formed due to the difference in prices for the traded asset in different periods of time.
2. Margin trading
Leverage is applied when trading CFDs, or in layman's terms, а loan. By applying this receipt, а trader is able to make transactions with amounts that are many times bigger than the size of his security deposit. This tool allows trading in the market with а relatively low initial deposit. As а result, CFD gives the opportunity to trade in small funds, and at the same time receive а very substantial profit. However, to use leverage, traders need to pay а certain percentage. This is reflected in the fact that а certain amount of funds is debited from а client’s account when а position is transferred to the next trading session. Such contributions, so to speak, reimburse the brokerage firm for the costs of lending to its customers.
3. Perfect tool for “small investors”
The cost of “entry” into the world stock exchanges is from 5,000 dollars. The minimum purchase is 10 stocks, the maximum leverage is 1 to 3, the average change in the stock price is about 30% per year. A forex broker gives an investor access to the stock exchange rialto with а deposit of 100 dollars and а leverage reaching up to 1 to 500.
4. Short positions
CFDs can be traded not only by opening long (buy) positions but also by opening short (sell) positions. And all this can be done by actually selling air, that is, without having the underlying asset. It’s worth noting that it is only today that such an opportunity has appeared. Previously, simple traders did not have such an opportunity, and only major professional investors had it.
5. Diversification of investments
Well, of course, you should never put eggs in one basket. This is fraught with consequences. The more tools in the investment portfolio in which funds are invested, the lower the risk of loss of funds in case of an adverse price change.
CFD trading does not force filling out any papers, allows trading large volumes, and earning more on it.