Statistics taken from some of the most popular CFD companies, such as the CMC Markets revealed that CFD has been growing rapidly the past few years. Despite that, there are still a lot of things people don’t know about the CFD and here are some of those.
- CFDs Will Not Reveal the Trader to Tax Burden
One of the biggest differences between CFD trading and the traditional trading is the fact that the latter doesn’t need any form of physical ownership of the underlying asset. That said, there’s no need to pay for stamp duty on CFD trading.
- CFD Allows the Trader to Use Their Capital Effectively
CFD allows the traders to trade with the use of a margin. This only implies that you’ll be provided with ‘leverage,’ resulting to a privilege that would allow you to be able to trade without the need to put down the entire value of a certain position. Aside from that, a trader doesn’t have to invest all his money in a single transaction. With CFD, you are allowed to invest it somewhere else as well.
- CFD Allows the Trade for Both Falling and Rising Markets
With CFD trading, you are allowed to trade both when the cost of the product is going down or going up. This only implies that if you try, it’s possible to benefit from both selling and buying opportunities involved with CFD trading.
- In Order to Be Successful with CFD Trading, You Should Focus on a Single Market
For traders who want to achieve success in CFD trading, it’s very important to pay attention to the different markets that you can consider, and focus on one that you prefer most. Also, trade with the market you’re really familiar with and don’t forget to do some research about that market for you to become familiar with the patterns, movements, and behavior of that certain market.
After some time, you’ll develop an in-depth knowledge about the factors that would affect the prices and you will also learn how to manipulate these prices as well.
Furthermore, instead of concentrating on a number of markets, it’ll be better if you’d put your best efforts and determine what kind of announcements could lead in volatility in the instrument chosen by you.
For example, you need to decide whether you should trade oil or not. That said, you have to know that the EIA publishes a Petroleum report weekly and that report has an influence on the price volatility of oil. Not being aware of the possible impact of this report would prevent you from achieving what you could have achieved in CFD trading. Gathering this kind of information would be very helpful in the long run.
- CFD Allows the Implementation of Hedged Positions
Another procedure investors could consider adopting when it comes to limiting potential risks would be the use of hedged positions. For instance, a person trading a stock has a long position and for some reason, the stock starts to experience losses. For this, the person could open a fresh new position using a shorter CFD.
- CFD Encourages Risk Management through “Stop-Loss”
Whenever the market price moves against the trader, a “stop-loss” would serve as an assistant in stopping losses. Simply put, a stop-loss serves as a closing order where the investors must indicate the amount of risk he’s willing to take.
Relying on stop loss would indicate that the moment the market would begin to move in the opposite direction would result in a loss of trade that would be closed automatically at the risk level specified by the trader.
The trader also haves the privilege of choosing what level the position should be closed. This decision would have an impact on when the opening trade would be taken. Depending on where you live in, the country’s law could also allow the editing of existing positions.
- CFD Offers Convenience
Even when the trader who is currently involved in forex trading is allowed to trade commodity CFDs. Aside from that, traders are also allowed to trade on the same platform where they’re trading forex and utilize tools that they have been using for it.
- CFD Offers Flexibility with Contract Sizes
Most CFD brokers offer a wide range of trade sizes to choose from. This allows the traders to pick which one is best for them.
- CFD Will Provide Access to Liquidity
CFD prices reflect the activities involved in the underlying markets. This leads to giving access to the liquidity offered by CFD providers.
- CFD Allows Diversification
CFD allows the traders to get in touch with different markets and instruments, including foreign equity indices and commodities. This helps the traders diversify their trading profile.