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CFD (Contract for Difference) trading has become a highly popular trading technique amongst retail traders in recent years. Most forex brokers now offer Online CFD Trading as part of their repertoire of trading instruments, which is usually broken down into futures trading, commodity futures, indices and stock trading.
What are CFDs?
CFD Trading enables traders to open positions with certain assets, such as commodities or market indexes, allowing them to speculate on movements in the underlying market. Profit or loss is calculated from the difference between the buying price and selling price.
Contrary to traditional forex trading, the investor does not actually own the asset, which automatically eliminates any stamp duty fees, commissions or other fees. As a result, CFDs are an ideal way to achieve portfolio diversification.
What are the Advantages of Trading CFDs?
Online CFD Trading offers a range of unique advantages to traders. If used correctly, it can be an ideal solution for traders as it provides the opportunity to leverage all returns. This means that CFDs can be traded with a small initial deposit, while offering the opportunity to generate excellent returns, provided leverage is used cautiously.
In addition, regardless of which direction the market is heading in, investors can make a return as trading success is not dependent on the direction of the underlying markets. Since Online CFD Trading can be performed on a range of instruments, they naturally incur a more diverse trading portfolio.
In particular, CFD trading typically offers lower transactional costs. While stock trading occasionally incurs a stamp duty, this is not the case with CFDs. Moreover, trading can be executed on a low-commission basis, which can greatly benefit active traders.
Finally, CFD trading can be executed alongside other forms of trading, such as forex trading or precious metals trading, for a convenient trading experience.
Risks Involved When Trading CFDs
Despite the upsides, there are a number of factors to bear in mind when doing Online CFD Trading through any forex broker. First of all, if you have decided to hold out for a longer-term period on your CFD trade, then overnight fees for holding long positions can begin to build up.
In addition, as you are trading with fairly high leverage, there are heightened chances to experience a huge loss of funds when trading. Finally, Online CFD Trading is a highly volatile activity as prices are very likely to move in an unexpected manner. Though trading opportunities will become more diverse, trading risks are also augmented. Investors must always assess their risk management capabilities before trading CFDs.
Trade CFDs Trading, Confidently & Comfortably
