Before you start trading CFDs, you must have a clearer look at the advantages that you can possibly reap if you play it right.
Advantages of CFD Trading
CFD allows you to access wide options of markets, short trades, and leverage. Because of that, it isn’t very hard to realize where the popularity of CFDs is coming over the past few years. If you are still not convinced about using CFDs, check out these seven reasons below.
Get Profit Even in Falling Markets
The major difference between CFD trading and traditional trading is the ownership of the underlying asset. Unfortunately, since you don’t pay the full amount of the underlying asset, you don’t hold the owners of it. But that is not entirely negative. In fact, it brings forth advantages of going short or going long.
If you go short, you sell your contracts. And if you want to close the trade, you will be buying a similar number of CFDs. By doing so, you are able to profit in the market, even if the price is falling. CFD is not similar to investing because you will have to borrow something to short a trade.
Keeping Your Capital Safe
Another benefit you get from CFD trading is the use of leverage. With leverage, you are able to open different positions without the need to pay for the total value of the assets. You are only going to pay for the margin or the deposit that is required to open a trading position.
However, it is important to understand that leverage must be handled very carefully as this might give you losses instead of gains. Leverage is a double-edged sword. It can mirror gains but can mirror losses too.
Similarity to Traditional Trading
CFD is not the only option you have if you want to trade in the financial market without buying assets. You can opt to use spread betting, futures, and options. But CFDs are very similar to traditional trading compared to other derivatives. CFDs allow traders to buy and sell contracts that are particularly designed to mirror assets that they represent.
You Are Allowed To Trade Forex, Shares, Indices and So Much More
There are a lot of assets that CFD brokers offer to traders. You have unlimited opportunities to earn.
- Trade on shares from blue-chip companies like Amazon and Apple.
- Trade world-leading stock indices.
- Trade Forex with minor, major, and exotic currency pairs.
- Trade with key commodities such as Gold and Silver.
- Trade professional cryptocurrency accounts.
Another good use of CFD is that each of these markets is readily available in a single platform. No need to swift from one platform to another. It will only take a few clicks to perform your tasks.
Hedging in CFD
As mentioned above, you can take short positions in trading CFDs and you can profit from falling markets. This is an ideal way of counter weighing the risks associated with trading as well as protecting your investment portfolio.
Pay Lesser Tax
Another benefit of not owning the underlying asset is that you get to escape from paying UK stamp duty. This will save you some trading costs.
