CFD Trading – speculation based
CFD stands for contract for difference. It is essentially a contract in which the closing and opening prices of the contract are exchanged after being multiplied by the contract’s underlying volume. CFD trading is not like traditional trading in the sense that physical delivery of the investment is not there. The traders simply trade or invest and hope that the underlying market’s price goes up. CFD trading allows traders the advantage of margin trading. This means that the profit or loss incurred will be significant.
There are many reasons why people engage in CFD trading.
The traders can make profits even when the market is declining. Traders are in control as they can issue both stop and limit orders. There is minimum cost that is you only have to pay the commission and no stamp duty. Traders can choose from index tracking CFD, commodities, and single stocks. Margin trading can be done allowing traders to invest their capital in small amount and thereby using them efficiently. It also allows them to leverage their investment and thereby increase the amount of profit or loss they incur.
This kind of trading is not allowed the United States of America.
It must be noted that this kind of trading is very risky and the losses can be as high as the profits to be made. Therefore traders who wish to engage in CFD trading are advised to carefully consider their investment goals. They should also take into account their appetite for risks, and their experience levels. To put it in a nutshell, traders should engage in CFD trading only when they are ready incur losses. These losses can be limited by issuing stop orders and using offset positions during market movements, but only to a certain extent. There is very little chance of getting out with no loss if you don’t make a profit while engaging in this kind of trading.
Johne has been in trading in the stock market for many years. He has traded extensively both in forex as well as CFD. His knowledge of the stock market is huge and he has done a detailed study on CFD Trading.
Processing your request, Please wait....
