Benefits and Risks of Trading Contracts for Difference

Contracts for difference, or CFDs, allow an investor to buy a contract for an asset on the difference in price. The difference is when the position is opened and closed, so the expiry date of the contract is very important.

One of the main advantages of CFD trading is that there’s a massive market at your fingertips. You’ll be able to trade over 15,000 markets, and this will include:

  • Commodities
  • Forex
  • Options
  • Shares
  • Indices

And for the first-time trader, it’s very convenient to be able to trade all of these different markets under one platform. Use a phone, tablet or web browser to be able to track and make all of your contracts. It’s easy to make trades and investments using any internet-connected device.

You also have the benefit and risk of using leverage.

What is leverage?

Leverage allows you to make your investment capital go further. For example, you may want to use your margin, or the deposit you put down on a contract position for Apple. You may be able to take a position with a 10% margin, or deposit.

Based off of this, you may only have to put down $1,000 on a $10,000 position.

If you win, you’ll win big. But if you lose, you’ll also suffer major losses in the process. Leverage trading is something that’s only recommended if you have immense experience in trading and fully understand the risks that you’re taking.

Leverage trading can completely wipe out the entirety of your capital with one trade, so unless you’re willing to lose it all, you may want to stick to traditional contracts.

There’s also the option of being able to trade in bull or bear markets. You can trade on rising or falling markets, and this means being able to profit on any position that your contract moves, up or down, depending on position.

Hedging positions can help limit risk, and this allows you to trade on the long and short of the CFD. While somewhat redundant, hedging will allow you to balance out your losses and prevent potential future losses.

Flexible contract sizes do allow for better overall freedom when trading, and this means starting small to help avoid potential losses.

When you enter into a CFD, you don’t own the underlying asset, so there is no long-term holding of a stock, for example. You won’t have the benefit of voting rights or being able to stick with a stock for decades to watch it grow.

Markets will completely dictate the CFD, and you have to become very good at forecasting if you want to be able to make successful trades.

Every investment and trade is a risk, and with CFDs, you’re able to make profits from your accurate forecasts and suffer losses from your inaccurate forecasts. All it takes is time and effort to get accustomed to this style of trading, and with virtually every market open to you, you’ll be able to invest in everything from gold to silver, bitcoin and indices to try and make a successful trade.

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