I want to tell you that today there are so many ways of financial trading, that for some people it can be hard to pick the one he/she wants to invest his/her money to. In this article we are going to consider the type of financial trading called CFD trading. As a matter of fact, CFD states for Contract for Difference.
The first thing we are going to mention is the fact that CFD trading differs from the other types of financial trading. For example, CFD differs from trading equities in the sense that the transaction usually just follow the movement of the underlying instrument. The reason is that you are not physically taking delivery or selling physical stock of the underlying in CFDs as in actual cash transactions.
Besides, in CFD trading there is such a notion as leverage. As a matter of fact, the leverage means that you have the chance to trade more money than you actually have on your account. In such a way, we can clearly see why you only have to part with a margin that is only about 10 - 15% of the actual cost of the quantity of shares you are actually trading. It's beneficial that with the help of leverage in CFDs you have the chance to trade up to 15-20 times your capital. What's more, you can get good profits when the movement of the market or stock is as per your position. Despite the fact that, leverage in CFDs give you huge privileges in case you win, you shouldn't forget that it can also result in enormous lose in case, your position wasn't the winning one.
Also if comparing CFDs to options or futures, we can see some differences. As an example, CFDs do not expire or have a date wherein the contract needs to be renewed. Additionally, it should be noted that a CFD contract gets renewed every day. This implies that if you want to carry forward your CFD position, you can succeed only if you have enough margins in your CFD trading account. In result your account will either get debited or credited depending on processes that have taken place throughout the day with your position.
However, in case you wish to retain from a long term perspective in CFD, such issue can also be resolved. This means that, if a particular stock has show a good increase after the results of that company has been declared, you can short sell the CFD of that stock. Acting this way, you can also receive profits from any fall in price, but only when holding on to the actual stock.
Author Resource:
Marcus Murphie is a well know trader with a number of years experience trading CFDs and other derivatives utilising a selection of CFD providers. Marcus has mentored a large number of aspiring traders and written various books and learning guides on CFD trading . Marcus trades with one of Australia's major CFD brokers, IC Markets, he has published a numerous articles for their internet blog which you can read on their site for free.
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