Option CFDs – A Good Way To Leverage Cash

Trading in CFDs gives a variety of choices like stocks, stock indices, commodities, bullion and options. Option trading is a versatile activity. Option CFDs are Contracts for Difference that gives the buyer a right to trade a specified financial instrument before a specified time at a specified price. If the value of the financial instrument that you buy goes up or down before that time, you are still entitled to trade them at the originally agreed price according to the option CFD.

Option CFD trading does not involve physical delivery of the concerned documents; it involves cash settlements reflected in your account. Option trading consists of call options and put options. Call options entitle the contract holder to buy the financial instrument within certain time period at a certain price, while the put option entitles the contract holder to sell the financial instrument before a specified time at a certain price. Therefore, one can be a call or put option buyer or seller in order to trade in the option CFDs.

If you expect that the price of a particular stock will go up by $5 in the next three months, you can buy an option CFD on that stock for three months. You would pay the difference amount three times the number of shares initially. Suppose you notice that the price of the share has gone up in just 15 days by $10, at this point you can close your position by booking the profits or continue to hold the options till the expiry of your contract period. It is no guarantee that the prices will continue to go up, they may come down lower than your initial price. Therefore, during the given period of three months you will notice several fluctuations in the stock price. An alert trader needs to understand the market dynamics, and make correct decisions to close the position in order for the trade to be profitable.

The performance of a financial instrument associated with your CFDs is driven by various economic factors, productivity of the company in case of a stock, demand supply ratio, and buyer seller ratio. Besides, variation in rules and regulations, political as well as social factors, may also affect the price movements.

Option CFDs are a good trading instrument in the case when you are sure about the movement of a particular financial instrument, or if you can predict the movement of a financial instrument with reasonable certainty, but lack of funds is preventing you from trading in that particular financial instrument. Option CFDs help you to seal the deal in advance.

CFD trading can be very risky because it involves several complexities. One needs to understand the trading process and nuances in the financial market, monitor economic indicators, be alert to follow the movements, and make quick judgments in order to avoid heavy losses. CFDs in option market are complex and come with risk factors. One needs to assess his or her risk appetite before investing in these securities. Options are available in the form of index options, metal options, commodity options, gold options and forex options. Traders with prior experience in trading gold, commodities trading or any other financial instrument can also trade in options.

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