This is the most beautiful aspect of CFD trading. It is also known as margin trading in which it allows traders to dive into more exposure in the market while not depositing all the value so you can use it to gain more profit.
- The similarity to the underlying market
To help you understand, allow me to share this illustration. For instance, when you buy 500 share CFDs it’s the same number when you buy company shares such as shares from the Jollibee fast food chain which means you also get 500 shares. So when you start trading your CFDs, the number of your shared CFDs bought will change accordingly. However, mind you that you do not actually own the share.
- Trading flexibility
Having knowledge has always been an advantage in utilizing anything. There is a time when you need to buy and sell. For example, according to your prediction the value is about to go down so you sell to avoid losses before the price becomes cheaper. On the other hand, if according to your prediction the market value is about to go up it would be a great opportunity to buy at a cheaper price then sell it afterwards when the moment comes that it is in high value.
It is important to study and speculate how the market value works. Hedging is like insurance. Let us say, you have car insurance and you accidentally hit a passerby. Instead of you paying for the medications of the passerby you have hit, the insurance company will do it for you. Same goes with hedging in CFD trading, it is a tool used by traders experiencing unfortunate scenarios in trading. Although it cannot prevent bad luck from happening, it can avoid and counterbalance the amount of losses you may have.
- Wide possibility of trading
In Contract for Difference, it allows you to trade in a lot of financial markets. Nevertheless, it does not require you to access from the platform that you want to trade. Another benefit of this is that you can make trades even on the off hours of the financial market. This allows you to make transactions without getting affected by price changes.
Starting CFD is like counting the stars for its benefits. Aside from the benefits stated above, you can close your account anytime. Just purchase or trade the other way around than your usual opening trades. Mind you that the positions are possible to be held overnight which means in most cases charges are activated and it varies to your type of company brokers.
Before diving into CFDs, make sure to study how it works. Upon learning it, you will be able to weigh if it is worth the risk for you. If ever you decide to enter this precious field, keep updated and always reread, do constant extra research to ensure that you are still on the right track. Mistakes are normal especially when you are just starting, what you need to assure yourself is to learn from those mistakes. Beginners often mistakes is overleveraging and overtrading which they think that they will earn more in a faster way. So watch out for that.