Contracts for Difference – CFDs have been rising in popularity and there are no signs of them stopping. What’s the reason behind this exponential growth? – Liquidity, flexibility and profitability. CFD trading offer traders an arsenal of benefits, making it a very lucrative platform. The prospects for profits are always high in CFDs; with hefty leverages and margins, CFD traders can speculate on commodities conveniently, without owning any part of the asset! Fascinated by the contracts for difference ecosystem? Here are 4 aspects to help you understand better:
1) What are CFDs? Contracts for difference are financial instruments that allow a trader to speculate and bet on the rise or fall of a particular commodity without having to own the same. CFDs are a contract to settle the difference between an asset’s opening and closing price, between two parties – hence the name contracts for difference. 2) How to trade CFDs? CFDs offer immense flexibility in that, you can profit from a commodity’s rise and fall, i.e., the nature of an asset’s growth will never hinder your trades; as long as you speculate with precision, profits will make their way to you! In CFDs a majority of traders exhibit a standard trait – buying long and selling short. Buy long when you see a hike in a commodity’s price, and sell it short when a drop is predicted. However, if the market goes against your said predictions, you will incur losses. 3) What are Margins and Leverages? Conventional trades require that you purchase a commodity fully before trading. However in CFD trading, you can operate using leverages. With a small amount (a percentage of the full value), you can open a position. Additionally, your broker will provide leverages to speculate on assets which are of high value and normally impossible to gain exposure to. These traits of CFD trading are beneficial as they are dangerous; a high leverage can mean a high profit and a substantial loss too. Ultimately, it comes down to your skill as a trader and how you efficiently your manage risks. 4) Why trade CFDs? The predominant reason to trade CFDs is the leverage provided. A good trader will exploit this to the fullest and milk the market efficiently. With a little initial investment, you can earn huge sums, provided you know your way to the top. Other advantages include the provision to trade long and short, keep away taxes and enjoy the immense liquidity of the market!