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March 29, 2018

Question:What are the merit/advantage of trading CFDs?

Answer:

1. CFDs are traded on margin, so you can maximize your trading capital.

Rather than pay the full value of a transaction, you only need to pay a percentage when opening the position, called initial Margin.

The key point is a Margin allows leverage, so that you can access a larger amount of shares, than you would be able to if buying or selling the shares yourselves.

2. No stamp duty is payable.

Because with CFDs, you don’t actually physically buy the underlying shares, you don’t have to pay stamp duty, saving 0.5% when compared to a traditional share-deal.

3. You can profit from falling or rising markets by trading long or short.

4. A single account can give you access to a far greater range of financial markets.

5. You can limit and manage your risk, using stop losses and limit orders.

A stop loss is a price level set by the client on a particular trade that if reached, automatically closes out the particular position at the desired price.

A limit order is one that is executed at a better price than the prevailing market price.

i.e. For a long CFD trade on the stock drops to a certain level or for a short CFD trade on the stock rises to a certain level.

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