Perhaps, you know some information about CFDs or Contracts for Difference, but definitely, you don't know everything. First of all, let's talk about the fact that although CFD is rather popular throughout the world, it is illegal in the US. In the following post, we are going to have a closer look at Contract for Difference, and try to find out why is it so popular all over the world, and is it as good as it seams to.
As a matter of fact, the person who trades on a short term basis, usually is concentrated and sometimes even obsessed about trading costs. On contrary, those who are trading long term positions, are not too concerned about a bit of slippage on their entry. Additionally, such traders are not in need of the lowest brokerage fee. The thing is that, they don't have to pay it too often and a few dollars either way are not too significant.
But, those who are day-traders, usually are loading up with a lot more contracts. Indeed, they do this seeking for more profits, as they capitalize on just a few points of movement. That is the reason why in this type of trading it's really necessary to look at the amounts of slippage and brokerage costs. Your task is to keep these expenses to an absolute minimum.
If having a closer look at CFD companies, we can see that they as rule offer commodity trading in the grains. Besides it's beneficial that CFD companies have no brokerage fee on the contract, and no interest charge on long term holdings. Although this seems like a bargain, an investor should be aware as there is a catch. I'm talking about the spread. Usually, if we look at the real futures market, we'll see that there is the trading with a half point spread. In other words if you buy and immediately sell - or sell and immediately buy - you are down half a point or 25 dollars per contract. Nonetheless the spread you will be quoted for a CFD is about five full points, this will be 250 dollars. And for you to break even in such a situation, you have to make the same five points on the trade.
To sum it up, I want to tell you that if you trade with Forex or CFD companies, you are not in the real market. Indeed, if using these types of trading, you are bidding in a market they make. Furthermore, those who are on the real market are trying to make sure that they offset every position you take to their advantage. Besides, if it happens so that you hit a bid/ask in a fast moving market, and it can not be offset by brokers, it will not be accepted. In such situation you will get a re-quote on the price.
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If you’re thinking about learning more regarding CFD trading and discovering how how you can benefit from buying and selling this revolutionary financial product you can read more about CFDs on IC Markets site.
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