What are the benefits of CFD trading?
Introducing CFD trading
CFD stands for ‘contract for difference’. It is a derivative which makes speculating with a small deposit easy. CFDs are directly negotiated financial instruments. As unregulated derivatives they allow traders to take advantage of prices moving up or down on underlying financial assets. Investors can use CFDs to take a position on underlying assets without actually owning any asset, which is why they are called derivatives. CFDs are traded in real time and at identical rates: profit and losses are credited to or debited from the client’s account and follow every market move.
As CFDs are contracts unregulated by traditional exchanges, they are more flexible. Brokers can choose their own rules for CFD contracts based on variables such as: the underlying item, contract time, value, spread, commission, leverage, trading hours, etc.
A wide range of underlying assets is available
There is a wide range of available underlying assets: stock market indices (CAC 40, Dow Jones 30…), shares, commodities (gold, oil, wheat…), and foreign currencies (euros, USD…), for a total of over 7,000 available underlying assets which traders, professionals, and non-professionals can all trade.
Other benefits of CFDs: leverage effect and commission charges
The success of CFD trading is down to its many advantages. First of all, CFD leverage is huge, much bigger than leverage on traditional share trading markets. The average CFD leverage effect reaches a factor of 10. In other words, if a share price goes up by 2%, the derivative CFD will rise by 20%. However, this leverage works both ways, and can be very risky if the underlying asset loses value.
Another benefit of CFDs is their ease of use. With only one account you can trade foreign currencies as well as shares or indices. Online trading platforms offer a choice of tools to help you trade CFDs easily using just one tool.
Transaction costs are much lower than on traditional exchange markets as well. Multiple online sites offer very good deals, with no commission or no costs for example. Looking closely at costs and commissions when trading CFDs can help you choose a broker on the CFD market.
CFDs let you closely manage transactions with ease. In fact, you can trade at 1 or 2€ per point which is not possible on other markets. Another benefit is that CFDs do not mature, which is one less hurdle to navigate and differentiates them from SRD shares (Deferred settlement service), for example. There is no deadline to track with CFDs, and they can also be closed at any time contrary to futures contracts and other derivatives. Trading CFDs is thus more accessible and better suited to small investors as there are fewer restrictions.
CFDs are also fiscally advantageous. Trading CFDs brings some tax exemption as there are no titles on the CFD market, and buyers or sellers do not own the underlying asset.
Choice, flexibility, and simplicity make CFDs very attractive products to trade, and mean that profitable transactions can take place quickly and easily. This new, more open type of trading has already convinced thousands of traders.
Last Update on 30/11/17