Here are the 5 reasons to trade CFDs online. Know the product and Invest smartly!
CFD is a Derivative Product created by financial companies.
It is traded between two parties such as Investors and a financial company.
There are many advantages and here are the points summarized for you.
1. High Leverage
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 that margin allows leverage, so that you can access a larger amount of shares that you would be able to if buying or selling the shares themselves.
No need to have large amount money to start investing for Stocks, Indices or Commodities, because you are required much lower amount of funds to trade such financial instruments in a form CFDs.
The available maximum leverage are different by each brokers.
2. Low Fees
No performance fees, delivery fees, custody charges or commission to pay for agencies.
You can save a lot of fees and commissions by trading CFDs rather trading actual underlying financial instruments.
Also there is 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.
Only fees you need to pay is the spread costs charged by your financial broker, which is the difference between bid and ask price.
It is even possible to save hundreds of dollars of fees for one trade with CFD.
3. Profit from falling market price
You can profit from falling or rising market prices by trading long or short.
When a stock price is falling, you do not need to just watch it falling and losing your money, but you can sell a CFD position and make profits from falling prices.
Hedging your stock positions is also possible with CFDs.
With CFD products, if the market price goes to the direction which you have expected, then you will make profits despite of the direction.
4. Online CFD Trading
Now many Forex & CFD brokers offer over 100 or much more financial product through one trading account and one trading platform.
A single account can give you access to a far greater range of financial markets.
There is no need to contact a number of agencies or visit their offices to sign up, but all processes are done online.
For these days, Forex and CFD financial products are offered together in one trading account.
5. Limited Loss
You can limit and manage your risk using a 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 when the stock drops to a certain level of for a short CFD trade when the stock rises to a certain level.
Also it is the world standard to have NBP(Negative Balance Protection), so investors do not need to cover exceeded losses in their accounts.
Thus, the loss is limited to the deposit amount.