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While there’s an ever increasing number of CFD traders, a lot of investors remain skeptical when it comes to CFD trading because the concept and the advantages of this type of trading are still very new and fuzzy to them. To clarify all these aspects, in the following article you will find a detailed description of how CFD trading works, the advantages it comes with and why 2019 is the year you should try it!
What is CFDs trading and how it works?
A Contract for Difference or CFD is a modern financial instrument that allows you to trade on the difference in price of stocks, indices, commodities, cryptocurrencies and other financial products, without actually owning the underlying asset. This contract is set between you and your online broker, which in lack of any standard conditions creates its own requirements.
CFDs work in a similar way as Forex trading does. All you have to do is choose the asset you want to trade, place the order and open a short or long-term position to speculate on prices and ultimately either buy or sell the asset. After the position is closed, the difference between the opening trade and the closing trade will be the loss or profit. In case the CFD doesn’t expire, the positions opened overnight will be rolled over.
CFDs can also be traded on margin and they typically provide higher leverage than other financial products. In fact, this is a feature that depends on the broker you’re trading with. TradeFW.com is a renowned CFDs broker, registered and authorized to operate by the Cyprus Securities and Exchange Commission (CySEC). It allows its customers to trade with a leverage ratio of 1:30 on the selected CFDs (forex, commodities, indices etc.), while also providing them with leading educational materials & daily analysis, as well as 24/5 dedicated multi-lingual live support. CFDs require a safe and modern trading environment, that’s why the conditions that TradeFW puts at your disposal are ideal.
The advantages of CFD Trading
Based on what we’ve discussed about CFDs so far, it is obvious that they come with numerous advantages. First of all, the variety is very appealing! You can choose from any asset class to trade with a CFD – from the major currency pairs to your favorite stocks and commodities. Moreover, you can do this through an agreement between you and the broker, without having to purchase the asset involved. Due to the lack of asset purchase process, there is no stamp duty involved!
CFDs also give you the opportunity to earn dividend! This can happen in case you’re holding a CFD position in an organization at the time of the dividend payout. If the stock of the product or the company performs well, you will also benefit from it. On a similar note, you should know that the online brokerage company pays interest to the customer on the money tied up in short position CFD.
Another advantage that might make the difference for beginner traders is the flexibility of CFDs. Most CFD brokers allow their customers to actually purchase CFDs even after hours. Basically, if you’re trapped each day with your 9-5 job and you’re not able to spend the necessary time on trading throughout the day, you can purchase and trade CFDs after you arrive home from a busy day at work.
Last but not least, arguably one of the biggest advantages is the possibility to trade on margin with a substantial leverage ratio that can bring you attractive returns. As we mentioned, some elite brokers like TradeFW allow you to trade even with a ratio of 1:30 on the selected CFDs. In case you fear the market will turn against you, it is also possible to set all types of orders (stop-loss, take profit etc.) with your broker to exist the position at the most convenient time.
Why 2019 is the year you should start trading CFDs
CFD trading implies lower costs than many other types of trading and allows you to profit quickly from the price fluctuations. So far, 2019 has been filled with high-impact events that made the markets respond in exciting ways, offering traders around the world a lot of great opportunities.
The Bottom Line
CFDs hold a great number of advantages and are among the most lucrative financial products. With the right broker, you can trade on margin and gain the profits you’ve been dreaming of, without purchasing the actual asset, without stamp duty and without having to invest a large amount of capital. This year the financial markets are buzzing with opportunities, so make sure you don’t miss any of them!