If you are new to CFD trading, you may ask “What is a cfd?” or “Will I really profit from CFDs?”
Here is a simple and yet useful article to get you up and running quickly with CFD trading.
With this article, you will know how CFDs work and what makes them highly profitable. This article will also help you understand the costs involved in CFD trading.
CFD or Contracts for Difference is a derivative product where you gain profit from the changes in the prices of shares and stocks. For example, if you buy a stock at $10.00 and the price rises to $10.50, then you profit from that price change. If you bought several stocks and the price rises, then you get higher profit. The value of CFDs mirror the underlying stock markets. You can profit from this movement.
There are a lot of reasons why CFDs are a popular trading product these days.
First of all, CFDs are traded on leverage. Typically, this leverage is 10 to 1. Some CFD brokers provide 20 to 1 leverage. This means that traders with small float can make profit from stock market trading using CFDs. If you have a stock trading system that is making 30% return per year, for your $5000 float, this means that you profit $1500 per year. Because of the leverage, your same stock trading system can now produce 300% return.
Second, short selling your CFD is easy as well as making you profit on falling markets. This makes a trading system more profitable because trading opportunities dramatically increases and also the fact that you can profit both from bull and bear markets.
Third, as compared to stocks, CFD trading costs are relatively lower. This is so because for similar and often small cost per trade, one can gain 10 times the results from a trade because of the leverage available. Interest and Leverage are the two main costs in CFD trading.
Fourth is that you can set automatic stop losses. With this, it’ll take you less time to trade and remove all the emotions you have from exiting the trade when you should. It will allow you to exit when you hit the stop not a day later. Therefore, you avoid slippage that is due to getting out of the trade later than you intended.
Lastly, you can place your orders in the evening which is a great advantage for people working as they can do the trading in the evening and won’t need to be at the computer screen or call their brokers during the day. And if they have stop losses, they need to adjust, they can do so in the evening. They can do their trading routine with a mechanical system about 15 minutes a day.
Those are the advantages of CFDs that makes trading accessible to many people. You now understand how this trading instrument allows people with modest float to make decent return.
Keep reading as much books and blogs about CFD trading to gain more knowledge about the market before plunging in.
Post Contributed by Phoebe Damien
