CFDs or Contracts For Difference are agreements made by two entities based on stock price movements. This agreement is basically drawn up between one person who owns the stocks and another person who wants to benefit from a positive stock price movement – but who does not actually want to own the stocks.
Trading CFDs means that one entity would be more exposed to risks but would be in a greater position to profit whilst one would be relatively safer. In other words, this means that the owner of the stock would have the higher chances for profiting or losing.
Today, trading CFDs has turned into one of the most popular forms of shares or commodity trading. This is because there is a lot of advantages to be had from CFD trading. Some of them are as follows:
1. The range of possible assets to trade. CFDs come with a vast array of commodities, bonds, currencies, stocks, and shares that investors can choose to trade. This makes it easier for those who want to be presented with a list of possible assets to be traded. The range of the reach of CFD trading is one advantage that many investors are only too eager to cash in on.
2. Flexibility of the chances. CFDs work according to the price movement of a certain stock and if it raises the investor profits. If it falls, the investor loses. But, trading CFDs is equipped with the option for investors to react according to how they perceive the market. They have the chance to buy a certain position, as well as sell a certain position. This comes in handy, especially when one is determined on not losing a lot of money.
3. Does not have an expiry date. CFD agreements do not set a final effective date. As long as the investors are willing, the agreement stands. A lot of investors have seen how beneficial this certain CFD trading feature has turned out to be. It stands as a way to keep on profiting for as long as you think you can, and bail out when you think you have been losing out a lot.
4. Does not come with stamp duty. Another good thing about CFDs and trading CFDs is that they do not come with the usual tax charges on other forms of property or shares purchases in the United Kingdom. Also, CFD trading allows for no annual charges and broker fees.
5. Equipped with margin trading. The leveraged ability of trading CFDs is probably the best reason why this has risen to a lot of popularity. Leverage allows investors to initially put up only a margin of the total price of the asset, compared to other forms of trading. An added bonus about CFD trading is that the margin does not have to be that big. Meaning, a lot of investors can keep reaping in profits for a period of time whilst saving money because of the low initial deposit.