Trading CFDs is a venture where you get to experience handling a high risk yet profit rewarding product when handled the right way. As someone who wishes to explore the vast nature of virtual trading, this type of instrument is something that must not be missed despite its controversies. Trading with CFDs should not just be choses because of the promising profit it could give you once played well but also because of the various skills and techniques that you will learn once you get a hand of utilizing such an instrument. This type of trade is not so simple to handle as it requires thorough understanding in terms of leveraging and planning. In this article, we aim to give you a simple exposure on the basic must-know and learn facts about CFDs.
Fact 1: CFDs are like spread betting
If spread betting is a new vocabulary for you, this term simply refers to the various means of wagering on the result of an event in which the result depends on the accuracy of the wager instead of merely focusing on whether one wins or loses. CFDs are also like this, this is a type of contract which allows a trader or client to perform a trade even without physically owning shares or stocks. Both the spread betting and trading CFDs have similar concepts yet their nature differs. The former is a type of gambling while the other is not. This then tells us that trading with CFDs only gives freedom from stamp duty but not in capital gains tax.
Fact 2: CFDS are contracts
As its name implies, Contracts for Differences are agreements between the broker and the client which give the privilege for clients or trades to perform in a market via the rates of derivatives and securities. These are being utilized by investors to predict the prices of an asset or stocks. These contracts come in many forms including futures contracts. Every contract has varied characteristics depending on its type and nature. Futures CFDs for instance are agreements where both the client and the traders agree to purchase or dispose of an asset at a preset rate along with an expiration date in the future.
Fact 3: CFDs are over-the-counter products
When we say over-the-counter, we have to note that this product is not regulated by any regulating body. This characteristic makes CFDs vulnerable to risks and fraudulence such as scams. But on a lighter perspective, searching for some legit and credible brokers and platforms will help you lessen the risk of being scammed. As an over the counter product, you also have to know that this item is not traded in major exchanges.
We have mentioned that CFDs are instruments that are vulnerable to risks but they are generally promising instruments to gain profit when handled the right way. As someone who has been into trading CFDs, a good piece of advice that we can share is to make sure that you thoroughly understand how such instruments work in the market. You can do this by picking some of the brains of those who have been in this field for over a long period of time and make sure that you have enough courage to deal with loss once you make a wrong move.