Contract for difference [CFD] trading offers opportunities to predict price movements of different financial assets and trade. You don’t need to own the underlying asset on which CFD is based. It is a best way to diversify your trading portfolio across variety of different global markets. CFD trading benefits include -
Shares include ownership of the specific company, so if company value decreases or increases the share price gets affected. Shares can be bought from and sold in the stock market but trading share CFDs offer several benefits.
•Share CFDs get charged through commission rather than spread.
•Single contract is equal to single share. It means CFD share trading is similar to stock share trading.
•Share CFD gives more flexibility because it is an agreement to exchange price difference of underlying asset.
•Short selling shares with broker can be a complex process but CFD short sell is easy.
•No stamp duty on returns.
•Losses against profits can be offset for tax purposes.
Index which represents price performance of an asset group at a specific exchange. No physical asset is being traded, so index CFD trading means purchasing instrument point equal to amount defined in local currency.
Commodities’ value fluctuates regularly because it is based on supply and demand. You can trade commodities with fixed expiries or as futures or without expiries. It means, a position can be held overnight or the position can be kept open indefinitely. Popular commodities are oil, gold, rough rice, orange juice, and carbon emissions.
Forex comprises of high volatility levels with 24-hour trading opportunities, so is most popular in financial market. Relatively small movements in Forex means traders can use leverage with CFDs. Single contract value will depend on the traded currency pair. For example, GBP/EUR is €10 per point, whereas USD/JPY is ¥1000 per point.
You can buy CFD [call or put options], effectively at specific or strike prices, before option expires. You get wide exposure to fluctuation in option prices without actually having to invest in physical shares.
CFD traders get a chance to speculate on different other financial markets like sectors, interest rates, bitcoins, bonds, and ETFs.
CFD trading tips for success
•Avoid trading on hunch
•No strategy is perfect
•Work out strategy that suits your trading style and target markets
•Define money management rules to identify trade size
•Establish risk management rules
•Identify entry and exit strategy
•Keep trading journal to identify success and failure points. It helps to focus on strengths and eliminate the weaknesses
•Discipline management because emotions can hinder your decisions.
Make sure to register with a reliable online trading platform. Check the spreads requirement, offered trading tools and personal customer support, before opening a CFD trade account.
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