CFD trading: what are its advantages and disadvantages?

CFDs (Contracts for Difference) or contracts for difference are tools with which it is possible to speculate. The financial markets that allow them are numerous, and it is not essential to own the underlying assets. The relevant contract means an agreement between the seller and the buyer. It relates to the exchange of the difference between the opening and closing prices of the assets concerned. What are the advantages and disadvantages associated with it?

Benefits

How to trade CFDs? You should first know some of their advantages:

The ability to trade up and down.

The traders can speculate on the rise and fall of financial markets. So you have a maximum profit to do, by buying or selling CFDs. In the case of a stock, the investor will only make a profit with a share price increase. It is quite the opposite with a CFD. You can make a profit by selling the shares of a company, if you believe that its value stock market will fall.

Placing money in various markets

Once registered with a CFD brokertraders have opportunities to invest in a wide range of financial markets. A simple account allows access to:

  • Forex CFDs;
  • clues;
  • Metals ;
  • Products;
  • Obligations ;
  • Etc.

In short, you have a wide range of potential investments to do.

Margin trading

By using leverage effects, it is possible to speculate on markets with a small starting bet. Leverage constitutes a loan made by traders from their broker. So they can take a stand largest in CFDs on the market. In doing so, the invested capital remains quite modest and acts as a margin. that’s why the accessibility of CFD trading seduced, in addition to profitability which is linked to it.

You understand why many traders are fond of it.

No stamp duty

the stamp duty is totally absent when you decide to trade CFDs. This is because you do not control underlying assets. CFDs are derivative toolsand they therefore exempt you from stamp duty.

The inconvenients

Despite all its advantages, CFDs should be traded with great caution. The investors must perfectly assess the risks they include, in order to make the best decisions. Note that leverage can also work against you. It is possible toopen a position CFDs with a small investment, but the risk is not less. Losses are likely to be significant in the event of price changeif you overdo it with leverage.

A informed investor must make sure to understand how CFDs workbefore embarking on financial investments. It’s the best way to choose a good management strategy.

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