It is the great leveraging advantage of an offshoot instrument like cfds that makes it very popular amongst traders. CFD trading finds favor mainly due to the fact that you do not have to physically own the stock and can still speculate on its cost movements paying just margin money. The fact that the cfd price mirrors the price movement of the stock in question in the cash market provides it with the credibility and liquidity it requires.
Many traders should not feel the hassle of researching into the balance sheets of companies along with other such detailed reports in order to invest or trade inside them. For them an offshoot instrument like cfds present the perfect chance to take contact with an asset class and never have to do much research and by just going by the market trends.
But there's some other reasons too which makes it this type of flexible trading instrument.
a) To start with, you are not required to pay any stamp duty about the profits you are making and may thus carry home the entire profit. This is because the authorities don't regard speculative trading as actual trading and also have kept it out from the purview of taxation. This implies that you cannot offset your losses against future profits.
b)CFD trading can be achieved for any of the asset classes like stocks, bonds, commodities and even foreign currency and the proven fact that you are not necessary to have separate accounts to trade in each of them is yet another significant benefit. This will make simple to use for you to track your trading too.
c) You can go short in addition to long on any asset class using cfds and that is again a very good feature of cfd trading if you are relatively strong in your technical analysis and may read charts good enough. You can then on a daily basis choose the asset class and particular stocks to visit both long and short on them to get the advantage of either price movements. This can be a wonderful hedging strategy and will ensure that you do not lose in a major way.
d) You can as an investor use cfds as an effective hedging tool to protect your money portfolio of stocks.
The above mentioned advantages definitely give cfd trading the advantage in terms of its flexibility. However, before trading inside them, it is best to understand the risks as well.
Author Resource:
The CFDs Explained sector is a preferred arena, learn about it and essential topics for instance Compare Trading Brokers at independentinvestor.co.uk.
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