The Main Advantages of CFD Trading

CFDs (Contracts for difference) are a method of speculating on the financial markets without buying or selling any underlying assets. CFD trading gives traders the opportunity to generate profits from price movements in the assets without actually owning the underlying instruments.

What is CFD trading?

CFD trading involves the buying and selling of CFDs. The main difference between CFDs and traditional trading is that with CFDs, you never own the underlying asset. CFDs are a type of derivative product because they allow you to speculate on financial markets such as shares, forex, indices and commodities without having to take ownership of the underlying assets.

How CFDs work

A contract for difference (CFD) is an agreement between an investor and a CFD broker to exchange the difference in the value of a financial product (securities or derivatives) from the time when the contract is opened to when it is closed.

As already mentioned, there is no delivery of physical goods or securities with CFDs. For example, instead of buying or selling physical silver, a trader can speculate on whether the price of silver will go up or down.

Essentially, investors can use CFDs to speculate on whether or not the price of the underlying asset will rise or fall. Traders can speculate on whether the price will go up or down. If the price of the asset increases, they will offer to sell the CFD.

On the other hand, if the trader thinks that the value of the asset will fall, an opening sell position can be placed.

The main advantages of CFD trading

Trade rising and falling markets

With CFDs, you can speculate on both rising and falling markets. This means that you can benefit from selling as well as buying opportunities. For instance, when an investor buys company shares, profit can only be earned if the shares rise in price. However, with CFDs an investor can also profit by selling shares if they think a company’s stock value will fall.

When you trade CFDs, you can go long (buy) or take a short position (sell).

There are also mostly no fees for trading CFDs so this makes them attractive to investors.

Trading on margin

With leverage, you can trade the markets with a smaller initial deposit. Basically, you ‘borrow’ from your broker and this allows you to control larger CFD positions on the market by investing a smaller amount of capital, known as margin. However, it’s essential to remember that your total profit or loss is based on the full size of your position, not your initial deposit.

Trade a wide range of markets from one platform

You can use contracts for difference to trade an extensive range of financial markets, including shares, indices, commodities, forex, cryptocurrencies, and more. You don’t have to access multiple platforms to trade different markets as all financial instruments are available in the same platform. You can trade CFDs via your web browser, your phone or your tablet.

No stamp duty

There is no stamp duty to pay when trading Contracts for Difference, making CFD trading more cost-effective than other forms of investing. As CFDs are derivative instruments, you do not take ownership of the underlying asset, so stamp duty does not apply.

DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication