CFD (Contract for Difference) is a method of trading that is trusted by quite a number of investors. Those who have dabbled and been successful swear by it. However, there are many people who are a tad apprehensive about it.
Many aspiring investors fear that there is too much effort involved in learning and understanding CFD trading. To begin with, an investor must understand that Contract for Difference trading hinges on short term short-term trading.
This ultimately means that you must decide if this method is appropriate to your trading style. A long-trader trader may not fond CDF a fitting method for them. On the other hand, if yours is short-term, then this method is a perfect fit for you.
Here are a few reasons why CFD is a great fit for short-term traders.
Easy to Understand
Despite fears to the contrary, CFD trading is actually quite easy to comprehend. If this is not your first attempt at trading, then you know a bit about it. You can apply your experience and knowledge in trading shares and stocks to this method as well.
You will quickly understand that the prices of CFD move in similar ways to actual share prices or even underlying assets. Your knowledge of other trading methods will therefore stand you in good stead when you switch to trading CFD. In addition, you will have an advantage over the rookie CFD traders in HK.
Allows You to Diversify Your Investment Portfolio
If you are just starting out on your trading journey, CFD trading is the perfect fit for you. This is because:
- It allows traders to expand their existing trading portfolios
- It allows fresh traders to create a trading portfolio that is diversified from the get-go
Trading CFD also gives you opportunities to trade in various markets. You can choose to trade in equity indices, shares and stocks, forex, commodities and so many other options. A beginner should, however, start out in one specific area and have a good understanding of it. Then they can move on to others.
Manageable Ways to Make Profits
CFD training gives the trader a variety of ways to make profits. Trading in stocks and many other markets only make profits when they increase in value. CFD, on the other hand, can make you profits even when the markets are going down.
You have only two choices with CFDs:
- Go short
- Go long
Going Short: This means that the trader expects the underlying asset to diminish in value. If this happens, you will earn a profit as your prediction will be on point.
Going Long: The trader expects the asset to grow in value. Again, should this happen as per your prediction, you will earn a profit.
Lower Commissions and Taxes
While this may depend on the broker you choose to work with, CFDs have lower commissions than other types of trading. In fact, the commission can be as low as half what other conventional trading charges depending on the broker you work with.
Absence of Ownership Risk
Since you do not own the underlying asset when you trade CFDs, you run no risk of ownership. You, therefore, have no responsibility towards the assets even if they should decline in value. When you buy stocks, you share in the ownership and feel the strain of loss should it occur.
Your profits are therefore more affected than when you trade in CFDs. After all, with this type of trading, you can stop-loss anytime and prevent further loss is a commodity is decreasing in value.
Factor in these benefits as you figure out if CFD trading is the right fit for your investment objectives. Also, ensure that you get a lot more information and engage a qualified and experienced broker to help navigate CFD trading.
This may be the investment option that you have been searching for. Not only is it short-term but it is also easy to follow your trading positions throughout the day.