CFD Trading – Top Advantages That Lure Investors

In CFD trading, there are two parties and there is a contract. One of the parties is the buyer and the other is the seller. In this type of trading, the seller is obliged to the buyer to pay the difference between the price of a particular asset at the opening of the contract and its current price.

However, if the difference is in the negative, the tables get turned and it is now the buyer who is obliged to the seller to pay the difference.

CFD trading started in London in the 1990s. But, it was only after a decade that investors learned that this trading actually brought benefits similar to financial spread betting!

Contracts For Difference is illegal in the United States of America. This is because of the inhibitions put by the US Securities and Exchange Commission on financial tools available over-the-counter. However, this trading is permitted in the UK, Netherlands, Germany, Poland, Portugal, Switzerland, Canada, South Africa, New Zealand, Australia, Ireland, France, Spain, Sweden, Japan, and Singapore. Some reports indicate that CFD trading would begin in Hong Kong too.

Advantages

One of the biggest advantages of trading in CFD is that it poses no particular terms and conditions. The traders can set their own terms and conditions and the investors may be required to comply with them.

Moreover, the traders can fix their own payouts in the pretext of account management charges, commissions, fees, and others.

Another big advantage is that contracts in this trading hardly expire. If there are open contracts during the closing of the day, they can be

extended to the next trading day. If, as a trader, you wish to make profits in CFD trading, you need to keep the minimum margin. If you are an investor and wish to earn money through this trade, you must be able to conduct a thorough market research to know the trends. You must also be able to calculate risks. Both of these are to be done on a regular basis for a lucrative existence in this trade. These efforts help you to reduce risks that might make you lose money and help you detect any loss already incurred. You get a chance to cancel the loss order in time.

Types of Trading

The market of today offers a slew of trading forms for investors who are ready to risk their money in a bid to make more. There are traditional betting, futures trading, financial spread betting, other betting types, and more to exploit. Then there is CFD trading. You choose the type of trading depending on your knowledge about the particular trade, the amount of money you can put at stake, and how much you are willing to hit and miss during the trade.

Of all the trading forms, trading in CFDs provides a similar experience to that obtained in futures. Its leverage benefit and liquidity makes this trade so attractive that many investors become loyalists of this type of trading! So, if you wish to bring some excitement with those crispy dollar notes, try CFD trading.

CFD Trading In Today's Market

CFD trading gives you the flexibility that you require to trade in current markets. The important word here is flexibility. That is what gives an investor control. In fact, control, by definition means having a plan ready for every scenario that may turn up your way. By using a mix of leverage and lower transaction costs, CFDs allow you to maximise your returns. Features like no minimum contract size and no expiry date ensure that no unnecessary entry or exit barriers are created. It as free as a market can get. It is these features that make CFD trading so lucrative. Let’s delve into the details to find out more.

Characteristic Features of Cfd Trading

Leverage: In business as in physics, leverage is the ability to do more and more with less and less. Great personalities have claimed that they could dislodge the earth, if they found a lever big enough to do so.

While trading contracts for difference, one needs to understand it as the amplifiers of profit and/or loss.

CFD Trading allows you to take the best advantage of a market movement by using leverage. You only have to put 5 percent of the money down on most trades. The balance 95 percent will be financed by the trading company at LIBOR+/- a few basic points. Hence, it is possible to gain 50 percent or more in a single day when the market may have moved less than 3 percent!

No Contract Size: CFD trading is pretty much like trading financial derivatives such as the futures market. The vital difference is the fact that there is no minimum size of a contract. You could trade a CFD for one single stock if required. This gives you considerable flexibility as your investment need not be in multiples of lot sizes.

Example: For a futures contract, you may have to trade a lot size of 100 shares. Hence, the options for you are in multiples of 100. Increasing by

Multiples of 100 increase your margin requirements and risk considerably. CFD trading, on the other hand, will allow you to trade one share if required. You, therefore, are in complete control of your investment decisions.

No Expiry Date: Another vital difference between the CFD trading and futures market is that there is no expiry date. In a futures contract, when the expiry date is near, the number of buyers for a contract reduces significantly. Liquidity crunch exerts a downward pressure as the contract comes near its expiry dates. Contracts for difference are free of any such artificial price declines.

Lower Transaction Costs: CFD trading may cost you more in terms of brokerage in some parts of the world. However, the whole idea was invented to take advantage of favourable taxation treatment towards gain from stock markets. CFD trading has the potential to decrease your tax bill and increase what you take home.